To understand a law firm’s culture and its growing pains, you only need to look at how it compensates its partners. Often, there’s a disconnect between the behavior the firm wants to encourage and what its compensation system actually rewards. This is especially true at small and boutique firms, where compensation structures were often designed by the founding partners early on and haven’t evolved much since. Years (if not decades) later, it’s doubtful that those systems will be well-suited for today’s market realities.
That’s why one of the most common scenarios we encounter as consultants is a firm that wants or needs to elevate new non-equity or equity partners, only to realize that the existing compensation structure falls short, and must change to attract and retain lawyers who want to build their careers there.
In these cases, the firm’s future is seen to depend on keeping new lawyers engaged and preventing them from jumping ship to another firm or striking out on their own. If you want to grow and keep key people, you need to keep them happy, which means revisiting your compensation system. For a growing number of law firms, bringing in new partners isn’t just a strategic move; it’s essential for survival and long-term success.
Why Changing Compensation is so Hard, but so Worth It
For those reasons, revamping your compensation system is rightly seen as a priority (if not the top priority) for many firms. But just because it’s critical doesn’t make it simple. Over the years, we’ve identified a handful of recurring reasons why firms delay these changes.
Starting with the basics, getting a group of largely introverted people prone to passive-aggression to openly discuss money is no small feat. For small and mid-sized firms, especially, compensation conversations are fraught because they are never just about the money; they inevitably drag in sensitive topics like power, status, and deeply held emotions, ranging from resentment to pride.
Moreover, compensation discussions aren’t just about minor tweaks; they often touch on the need for some fundamental change. The more you alter the compensation structure, the more you disrupt your firm’s culture and power dynamics. And, unsurprisingly, partners who’ve benefited most from the status quo, often founders or long-standing leaders, may resist tinkering with a system they perceive as successful.
Let’s face it: Lawyers aren’t exactly known for embracing change (a reputation well-earned, in many cases). Add to that the fact that talking about money brings up difficult, uncomfortable topics that most lawyers haven’t been trained to navigate, and you’ve got a brittle situation in your hands. Take the example of boutique firms founded by one or two revered partners. How do you approach a mentor you deeply respect, and to whom you owe genuine gratitude, and tell them the compensation system needs an overhaul? There’s a real concern that the more senior partner or partners will resist this conversation, in part because they may interpret it as really being about reducing their role, or even pushing them out.
It’s easy to imagine how conversations about changing a firm’s compensation system could spiral and lead to conflict. But at its core, compensation reform is a form of business planning and strategy. When handled thoughtfully, the benefits are substantial, both financially and in long-term stability. A well-designed system attracts like-minded people, reduces friction among partners, and helps preserve the parts of the firm’s culture that matter most.
So, if you’re in a position to consider elevating new partners, you likely have more options than many managing partners realize. And the first step is understanding your options and the tradeoffs they involve. That’s what this article is here to unpack.
Understanding The Existing Compensation Structure in Law Firms
Typical Compensation Structures
The conversation around law firm compensation has understandably been shaped by developments at large national and increasingly, international, firms. ALM and other outlets that track the biggest firms regularly report on metrics like Profits Per Partner and average or median partner compensation like they were sports scores, with each year as a new “season” producing both winners and losers.
There’s certainly something to learn from how large firms have historically approached compensation, but don’t fall into the trap of thinking that small or mid-sized firms face the same choices as their much larger counterparts. In many ways, smaller firms have more options and greater flexibility, in part because their decisions aren’t being tracked and second-guessed by the media.
Just consider how, historically, making partner at a large law firm looked very different from what it does today. Our founder, Gideon Grunfeld, began his career as an antitrust lawyer and litigator at Covington & Burling in Washington, D.C., a firm founded in 1919 by J. Harry Covington, a prominent judge, and Edward Burling, a prolific lawyer. In what turned out to be one of the more prescient business insights in the history of the legal industry, they saw that the federal government was poised for major growth and built a firm focused on helping businesses navigate it.
The story of how the firm added its first partners is both idiosyncratic and very interesting. In the 1930s, new federal laws introduced requirements for overtime pay, and, according to law firm lore, the response was to elevate a number of lawyers to partner status, including making some name partners, to avoid having to track hours or pay overtime. It was indeed a very different time.
Still, the core challenge remains the same: deciding who becomes a partner, on what terms, and under what compensation model. Today, the choices around this issue are more complex, but just as critical to the future of any law firm.
Compensation Models for New Partners
For many large firms, partnerships were often centered on seniority for decades. The longer you were at the firm, the more you were paid. Partners with the same seniority received the same or similar compensation and increases, a system that became known as lockstep partnership compensation. It has its charms and benefits, working especially well in stable, growing markets where partner roles are relatively similar.
While lockstep can promote collegiality and reduce infighting, it also has its limitations, particularly where partner contributions vary widely or growth has slowed. And like any compensation model, it involves tradeoffs. However, the goal isn’t to find a perfect system, but to choose one that aligns with your firm’s current needs and long-term strategy. And for that end, it’s worth seeing what options are out there.
The Hale & Dorr Formula
An interesting approach with a long history comes from the Hale & Dorr law firm, developed in the 1940s. This model is designed to tie compensation more directly to the work and client relationships that generate revenue. Instead of focusing on seniority, it breaks down collected revenue (not just billed) into the categories of Finder, or the classic “rainmaker” that brings new clients or business to the firm, the Minder, who manages the matter day-to-day and maintains the client relationship, and the Grinder, the lawyer or staff member who handles the bulk of the actual work.
While exact percentages can vary, the general principle is clear: the person doing the core work receives the largest share, with smaller percentages going to the rainmaker and the client manager. The firm also holds back a percentage to fund year-end bonuses. What makes this model successful, even if it needs careful accounting, is transparency and flexibility, as lawyers often want the ability to negotiate specific arrangements with certain clients or matters, and the system needs to accommodate that.
However, as the role and influence of rainmakers grew over time, firms began to question whether traditional, seniority-based compensation models were still effective. Paying all partners equally, regardless of their contributions no longer aligned with the realities of growing business demands and varied workloads. This realization led to the decline of lockstep models and the rise of merit-based compensation systems that strived to incorporate measurable factors like hours billed, hourly rates, revenue generated, and similar metrics. Today, most law firms, beyond solo or very small practices, use some form of merit-based pay. But don’t be misled by the term “merit-based.” It doesn’t mean these systems are inherently superior; rather, they arose as a response to changing circumstances.
A key driver of this evolution has been the increasing prominence of rainmakers within firms. Over the past several decades, compensation systems have adjusted to keep these vital partners satisfied. In many cases, this means rewarding the partner who manages the client relationship more than the lawyer doing the legal work. That’s not necessarily a better or inevitable approach, simply reflecting a shift in priorities.
One risk of overemphasizing client origination, however, is that the quality of the work can become a secondary consideration. The more a compensation system rewards individual business generation, the more it resembles what’s known as an “eat what you kill” model. As the name suggests, this approach can seriously undermine collegiality. If your pay depends almost entirely on what you personally bring in, you have little incentive to mentor associates or assist fellow partners.
At its extremes, an “eat what you kill” system can also threaten a firm’s financial stability, compelling partners to focus primarily on maximizing their individual take. This may cause a law firm to underinvest in the infrastructure and systems needed for long-term growth and sustainability, making them particularly vulnerable to losing rainmakers and putting future stability at risk.
Recognizing these risks, most firms today operate with some form of a hybrid compensation system. Instead of an “eat what you kill” approach or embracing a pure lockstep model where seniority dominates, many incorporate elements of both seniority and performance to balance stability with merit. Equity partner compensation can be tiered, for example, with partners within the same tier receiving similar pay.
Additionally, some firms don’t adjust partner compensation annually; instead, they calculate it on a rolling basis, often over three years, to introduce stability. While there’s nothing inherently special about the three-year timeframe, it’s one of several ways to balance rewarding short-term performance while fostering long-term consistency within the firm.
Profitability as a Factor
Given how much attention the media places on metrics like an individual’s book of business or hourly billing rate, it’s easy to assume that compensation systems are mostly about inputs. But the reality of running any business is that a firm needs to be profitable to thrive and grow.
Let’s not forget that the core distinction between being a business owner and being an employee is that owners share the profits, not just get paid for their time. That principle applies whether you’re running a law firm or opening a pizza shop. If two people start a pizza place together, it would seem odd to base their compensation entirely on how many pizzas each one made or how many pounds of pepperoni they sliced, and the same goes for law firm partners: there are limits to compensating them purely based on their performance.
When firms make profitability an explicit factor in partner compensation, they encourage owners to act in the best interests of the business and its clients. At a pizza shop, profit-sharing gives owners a financial reason to cover a shift when a manager calls in sick or to help train a new employee. At a law firm, the same principle applies, and partners have a stronger incentive to invest in infrastructure, support their colleagues, and contribute to the firm in ways that go beyond bringing in new clients when profits are shared.
And while it’s true that no business grows without sales, running a successful firm involves much more than just rainmaking. Profitability reflects a broader set of contributions, so the real question isn’t whether profitability should be part of your compensation system; it’s how directly it influences how equity partners are paid.
So don’t blindly follow what the headlines say big firms are doing. Your compensation system should reflect your firm’s size, culture, and strategic goals. It’s less like buying an off-the-rack suit and more like tailoring one to fit: the most effective systems are built from first principles based on what actually drives performance and cohesion in your firm. That’s the work we help law firms do: design compensation systems that reflect their specific realities, and that process begins by understanding how the key components of compensation actually function.
Alignment with Firm Culture and Values
What does it mean to align your compensation system with your firm’s culture? That process starts by evaluating three key questions.
1. How transparent should your compensation system be?
In smaller firms with just a handful of equity partners, full transparency is common, and everyone knows what everyone else makes. But as firms grow, some choose to limit visibility. In these cases, compensation may be handled through what’s often called a “black box” model, where only a small group of senior partners and administrators know the full picture, and most partners agree not to ask. This approach is the exception, not the norm, but it is an option.
2. How formulaic should your system be?
Do you want partners to be able to calculate their compensation by plugging in numbers like billable hours or collections? Some firms use entirely formulaic models, where any partner (assuming transparency) could sit down with a spreadsheet and figure out exactly what they, and everyone else, are earning.
3. How much discretion should be built into the system?
This often overlaps with how formulaic your system is, but not always. Even a system that’s largely formula-driven can reserve room for some subjective adjustments. But on the other end of the spectrum, we’ve worked with smaller firms that rely almost entirely on discretion. Partners take regular draws throughout the year, much like a salary, and then meet annually to divide profits based on their own shared judgment of who contributed what. These kinds of systems can work well when there’s a high degree of trust, long-standing relationships, and clear communication.
Nevertheless, what matters most across all three of these dimensions is that there’s no single right answer. We’ve worked with firms that land in very different places and are all thriving. How you answer these questions helps define what it means to be a partner in your firm. For example, if your model is non-transparent, that might feel out of step to a lateral partner who’s used to seeing compensation metrics shared openly. In their eyes, not having access to that information might feel like they’re not truly a partner.
How you structure these elements will shape your firm’s culture. A well-designed compensation model will naturally attract lawyers who share your values, whether it’s around how to reward rainmakers, prioritize teamwork, or invest in long-term growth, and, ideally, your firm will settle on consistent answers to these questions. You don’t want to renegotiate your entire compensation philosophy every time you talk to a new prospective partner.
Strengths and Weaknesses of Your Current Structure
Every compensation system has its strengths and weaknesses. One way to think about your options is to identify areas where there’s a gap between the behavior you see from partners and the behavior you want to incentivize.
For example, if you want to encourage more mentoring of associates or more willingness to take on leadership or managerial responsibilities, your compensation system can reflect those contributions. This could include paying managing partners a flat amount on top of on top of their other metrics, making profit-sharing a larger component of their compensation, or giving billable hour credits for additional managerial tasks and responsibilities.
You may also want your system to encourage the opposite, like pushing more partners to bring in clients, so the firm isn’t overly reliant on a small group of rainmakers. As a matter of policy, you could prioritize a lawyer’s book of business as a bigger factor in compensation decisions, more recognition for the work that a lawyer brings in, and relatively less for the work they bill, or even tie a lawyer’s marketing budget to the size of their book.
As Nobel Prize–winning physicist Richard Feynman famously noted, “The first principle is that you must not fool yourself, and you are the easiest person to fool.” He said this about evaluating your work as a scientist, but the point applies to compensation systems, too. It can be especially hard to fully and honestly evaluate how well your current system is working, and very easy to tell yourself that certain partner behavior is an outlier and not a reflection of how well your system is working. But over time, the reality will reveal itself. If your compensation system isn’t aligned with your actual goals, that misalignment will be hard to ignore.
Which brings us to one of the most common reasons firms end up revisiting their system: the need or desire to add or promote new partners. In our experience, this is often the key moment where firms realize that the model that worked so well for the founding generation isn’t well-suited to attract or retain the next one.
The Need To Elevate New Partners
As mentioned, one of the clearest signs for law firms that it’s time to revisit their compensation structure is the realization that they need to elevate new partners. This often isn’t about expansion for its own sake, but rather about the practical realities of succession, retention, and long-term viability.
Sometimes, founding partners are looking ahead to retirement or simply want to scale back their day-to-day responsibilities. That may mean stepping away from active administrative roles, reducing their client load, or handing over management duties. In other cases, health issues or life changes prompt a shift in priorities. Whatever the reason, these transitions create the need to identify and elevate the next generation of leadership.
Other times, the pressure comes from the outside. A valued senior associate or counsel may have been approached by another firm, and the only way to keep them is to offer the title and role of partner. In that scenario, elevation is less about tradition or hierarchy and more about recognition and competition.
Elevation can also be a natural next step in a lawyer’s career. Maybe it’s about recognizing consistent performance, expanding their credibility with clients, or positioning them more visibly as a leader within the firm. And for law firms looking to broaden their number of rainmakers, elevating lawyers who show potential to bring in business, it’s an outright strategic investment.
Ultimately, bringing new partners into the fold isn’t just about titles; it’s about ensuring continuity for clients, preserving the firm’s legacy, and building a leadership structure that can adapt and grow. And that brings compensation implications, raising questions about how equity is shared, how contributions are measured, and how compensation should reflect a changing mix of roles, responsibilities, and expectations.
The Role of a New Partner in the Firm’s Growth
Once a law firm decides to elevate someone to partner, the next question is what role you want this new partner to play. And the answer isn’t one-size-fits-all, requiring an understanding of both the firm’s long-term goals and the individual’s strengths.
Some firms want to offload responsibilities like administrative tasks, oversight of certain practice areas, or internal operations when more senior partners are looking to step back from the day-to-day running of the firm. In these cases, elevating a new partner can be a strategic way to redistribute those tasks and bring fresh energy to areas that need attention.
Others may also be looking for someone to step into more of a leadership role by managing staff, shaping firm policies, or mentoring junior lawyers. Not the flashiest roles, but they’re essential. A new partner who understands how to run the business side of a law practice and build strong relationships within the team can be just as valuable as someone who’s out bringing in new work.
That said, it’s common for growth-oriented firms to elevate new partners with the hope that they’ll also become rainmakers. Unless a partner is inheriting a book of business, it’s important to be realistic: not every excellent lawyer is naturally inclined toward generating new clients, and not every firm requires all partners to fulfill that role. However, if the firm’s long-term goal is to diversify revenue sources and reduce dependence on a small number of senior partners, cultivating new rainmakers becomes a key focus.
Finally, and amazingly critical, is fit. You want someone who not only has legal and business acumen but also works well within the firm’s environment. After all, this is someone you’re choosing to be a business partner, making strong interpersonal skills, sound judgment, and a steady temperament matter as much as (or even more than) any particular experience or success in their resume. Shared values and mutual trust always go a long way.
Whether you’re thinking about succession, long-term growth, or strengthening internal leadership, take the time to define the role you’re bringing someone into. These days, making someone a partner is more about shaping the future of your practice than about rewarding past work.
Challenges a New Partner Can Face
In our experience, the biggest challenges for a new partner often boil down to a lack of information and unclear expectations about their role. They may not fully understand what’s expected of them or how compensation will work in their new position, and it holds especially true in firms where the founding partners have been there for a long time, using a discretionary system where little is written down.
When you’re elevating new partners, it’s often worth introducing a bit more structure into your compensation system. This added clarity can be critical to building trust and setting new partners up for success, otherwise, you might run into some of the most common issues we’ve seen in the past:
- No access to financials before promotion: It’s surprisingly common for new partners to be elevated without having ever seen the firm’s financials. We’ve worked with lawyers who had been with a firm for a decade and still had no idea about revenues, profitability, or even how partner compensation worked.
- Lack of clarity around profitability and expectations: Even when some numbers are shared, firms often fail to explain them clearly or contextualize them for new partners, resulting in candidates at a loss when they need to explain to their families what the promotion really means financially.
- No strategy for funding a buy-in: In cases where firms require an equity buy-in, it’s common that no guidance is provided on how to fund it. We’ve seen cases where a partner offered to personally lend the new partner the money, which is a risky dynamic that we advised against. It’s preferable to secure a proper loan through a bank instead.
- Take-home pay decreases after promotion: This surprises many new partners, especially non-equity ones, when they shift out of employee status. As associates, they receive firm-subsidized benefits like health insurance, but once promoted, they may be responsible for those costs themselves. In the U.S., that change alone can eat up a quarter of their salary, which means their paycheck may actually shrink right after a big promotion.
- No time carved out for business development: Firms often encourage new partners to bring in new work, but don’t adjust their workload to make that possible. With the same heavy caseload and admin responsibilities, there’s little room to focus on building client relationships. Over time, that makes it harder to grow their practice, and in many firms, that means lower compensation.
- Sudden exposure to internal leaders: It’s a common oversight to bring new partners that have never interacted with the CFO or the firm’s leadership at large. Overnight, these individuals become central to the partner’s success, but without proper introductions or training, these relationships can feel intimidating and hinder confidence in their new roles.
- No prior management experience: New partners are often expected to manage associates or staff without ever having had real leadership experience. That learning curve can impact team morale, slow things down, and make the partner’s own job harder. When management doesn’t come naturally, client work can suffer, making it harder to build strong business relationships.
- Lack of preparation for status shifts among peers: On the other side of a promotion, the emotional shift can be jarring. One person in a peer group is made partner while others are not, even when they’ve moved through the ranks in lockstep. Firms rarely prepare new partners for how that change might affect relationships and team dynamics.
- Struggle with time management expectations: New partners are expected to act like owners, but firms don’t help them realign their calendars. With unclear priorities, they end up scattered across administrative work, legal tasks, and vague business goals with no roadmap to make it sustainable.
A comp system doesn’t have to address all of these issues, however. Many challenges are better addressed through mentorship, training, and ongoing leadership development, but it still plays an important role in clarifying what activities are valued by the firm and guiding new partners toward the contributions that support the firm’s broader goals. Wherever possible, the system should provide clear, measurable targets that make it easy for new partners to understand what to aim for and how their efforts translate into long-term success.
Considerations when Revamping Compensation for New Partners
- Fairness vs. Reward: You want to recognize what the new partner has done to earn this step, but you also need to be realistic about what the business can support and what the other partners consider fair. Elevating someone too far, too fast, can create friction that’s hard to unwind later.
- Long-Term Sustainability for You and The Partner: What looks like a generous offer in year one may become burdensome if it’s not tied to ongoing performance or growth. Similarly, a structure that leaves a new partner underwater can quickly lead to disengagement or departure.
- Profit Sharing and equity Options: These decisions aren’t just about money; they signal how you see someone’s role in the business. Equity, in particular, comes with real implications about responsibility, risk, and voice in firm decisions. Be clear about what’s on the table and why.
Implementing Strategies
The key to transitioning new partners, as well as implementing a new compensation system, is to make sure it can be done incrementally to not overwhelm the lawyers’ other responsibilities. For example, if a small boutique firm hasn’t elevated new partners in many years, we generally advise dividing the compensation process into two phases. First, the firm should come up with a system that focuses on already existing partners. This makes it easier to figure out what the firm can offer to the new partners it hopes to elevate next.
Yet, circumstances might require you to make an offer to new partners first. Even then, it helps to begin with a clear understanding of the principles the current partners want the system to reflect, like transparency, discretion, the role of profitability, and other essential elements we’ve already discussed. Having those key elements of the system in place makes it much easier to decide what to offer new partners.
A related strategy is to begin sharing financial and operational information with partnership candidates that non-partners aren’t aware of. This could include hiring plans and information about the firm’s lease and real estate situation. Nothing signals that someone is seen as a future business partner more clearly than sharing information usually reserved for owners. These kinds of discussions can be a helpful prelude to talking through the specifics of a compensation offer.
Transition Periods
It should be noted that many firms have introduced or expanded the use of non-equity partnerships as a transitional stage on the path to equity. These kinds of structures allow law firms to recognize senior lawyers and give them a greater sense of inclusion, which sometimes includes increasing their compensation, but without conferring ownership (yet). The idea is testing how potential partners fit and their readiness before sharing actual equity and the responsibilities that come with it, while signaling the confidence and potential a lawyer might have.
Separately, transition periods apply when it comes to how ownership is structured and passed on. Increasing gradually a lawyer’s equity stake over time is another common approach, although this is a distinct conversation from how much someone is being paid in the short term. A lawyer might be compensated at a certain level while slowly increasing their ownership in the firm over a series of years, based on certain criteria or negotiated milestones, to allow a firm to manage the financial and cultural impact of adding new equity partners while giving those individuals a clear path forward.
Whatever compensation system you choose, it’s best to treat conversations with new partners as part of an ongoing effort to adapt to business needs and market conditions. You want to preserve the key elements of your firm’s culture, but remain flexible where it counts. The more you approach compensation as a matter of business strategy, the more likely you are to have regular, thoughtful conversations, making it less likely for you to make changes just as a response to emergencies like a partner threatening to leave or being approached by another firm.
In short, the work of building a sustainable compensation model and a stronger firm overall doesn’t happen all at once. It starts with stepping back, thinking strategically, and making intentional decisions about where the firm is headed and who you want alongside you. If you’re ready to start that process, we’re here to help. Contact RFL today to talk about what a future-oriented compensation system could look like for your law firm.
