If you are a law firm partner, there are many reasons why you might consider switching firms. A competitor may offer a better platform and stronger bench, enabling you to serve your clients more effectively and ultimately generate more business. Another firm may feature a different geographic footprint that could better align with your practice or business development goals. Perhaps you’re looking to reduce the frequency of conflicts after having to turn away too many potential matters. Or maybe you are interested in taking on a leadership role, but your current firm has been slow to open up opportunities.
Although each of these factors is distinct, they have something in common: all ultimately bear on your compensation. At Lateral Link, this is our peak season for compensation questions from partners. The issue is front of mind for many, as they prepare their compensation memos and learn what they will take home this year. Some partners are ruminating on their desire for promotion to equity. Others have a nagging sense that their current compensation package does not fairly value their contributions. And some may have broader concerns about the stability of their firm’s finances in an uncertain economy and the attendant risks to their compensation trajectory. Might somewhere else offer a better package?
Reasons to consider testing the market
There are myriad ways in which firms can disappoint their partners financially. Here are just a few examples:
- Partner expected to receive more ownership units (i.e., a raise) but was disappointed to receive a smaller increase than anticipated. Management asserts that this is one of the largest raises in the firm this year and that they cannot go higher.
- Partner has finally originated enough business for a promotion to equity, only to learn that the target required to become an equity partner has increased. The new, higher originations requirement keeps equity out of reach.
- Partner is dismayed at the amount of his or her net worth tied up as a capital contribution and wonders if other firms might have different, more forgiving requirements. (The answer is yes! There are firms without capital contributions or with low capital contribution requirements.)
- Partner turns away business regularly due to legal conflicts with the firm’s other clients, materially compromising his or her practice-building efforts and sometimes leading the partner to refer millions in business to other firms. Inability to take on this work lowers originations, and as such compensation.
If you find yourself in a situation similar to the above, it could be an ideal time to test the market. Whether you can secure a higher offer will depend on various factors, including level of demand for your practice area, your reputation in the broader legal community, and your current volume of originations. But however it turns out, the process should be informative. At worst, you’ll have peace of mind that you are in fact being compensated fairly.
How to test the market
The most effective way to test the market is to work with a trusted recruiter. An experienced recruiter who understands your practice area and region will know exactly which firms are open to making lateral hires and which are offering the strongest compensation packages. As a first step, the recruiter will have you assemble a business profile and pitch, highlighting the value you could bring to a potential new firm. Even if you don’t end up moving, you may find this to be a valuable exercise that enables you to negotiate more confidently within your current firm’s compensation structure.
Of course, you can also attempt to test the market yourself, but you will lose the benefit of having a trusted advisor who knows your market and has secured offers at a range of firms. That unique and valuable insight can only help you.
Consider the broader opportunity
When testing the market, candidates sometimes have a tendency to focus excessively on the compensation guarantee that a firm is offering. It’s important to bear in mind that there are many elements to a compensation system beyond the guaranteed paycheck. For example, is the capital contribution unusually onerous? Also be sure to consider the likely extent of conflicts, as this could have an important bearing on your ability to expand your book.
Always place the guaranteed dollar amount in the context of the broader opportunity. For instance, if you have been turning away class actions work, joining a firm with a robust class actions practice is likely to accelerate your compensation materially. Even seemingly minor factors like having an office in a geography relevant to your practice can make a real difference.
Be a smart negotiator
One of the curiosities of being a legal recruiter is seeing partners who are excellent negotiators for their clients make serious mistakes when negotiating for themselves.
Sometimes an attorney will get a call directly from another firm, gauging their interest in a move. (Incidentally, this type of call raises unique issues for high-level government officials, where any answer other than “no” may lead to demands for recusal.) Flattered, the attorney only considers the firm that called. If you receive such a call, do not let the firm that reached out hold you back from exploring other options so that you understand your true market value. If the firm that called does not want you to test the market, it may be because they want to avoid a compensation bidding war. Failing to protect your interests in this scenario could cost you millions of dollars over the course of your career.
Another frequent error is quickly accepting a counteroffer from the current firm after tendering your resignation. Is the firm’s attempt to keep you too little, too late? Ask yourself if that one-time bonus is a band-aid on larger systemic issues, including the issues that motivated you to explore other opportunities in the first place.
The decision to move is a complicated one, requiring careful consideration. But it never hurts to check your market value, especially if you suspect your current firm isn’t treating you as well as it should. If you feel you could benefit from a confidential discussion about your individual situation, please contact me.