Ed. note: This is the latest installment in a series of posts on lateral partner moves from Lateral Link’s team of expert contributors. Michael Allen is Managing Principal at Lateral Link, focusing exclusively on partner placements with Am Law 200 clients.
The “Legal” world versus the “legal” world. The actual practice of law versus the construction of practices and firms. These are diametrically different disciplines, and while the demand for “Legal” work influences the “legal” world phenomenon of lateral hiring, many other market conditions dictate demand and compensation for partners.
Partners are often sequestered from the tedious details of the lateral market and, consequently, they often undersell themselves to firms and subsequently become underpaid. If you’re a partner looking to make a move, here are 5 beginner’s tips to maximize your lateral partner compensation package:
1. Sell High.
As with with real estate, you should sell high. Since firms run pro formas based on historical originations to determine future compensation, you want to make sure you are coming off at least several years of consistent origination credit from your current firm before looking to make a lateral transition. For example, if you had $4MM in originations in 2011 and 2012, but $2MM in 2013, you are not selling high and firms will probably look at your last year of originations when determining your compensation. On the other hand, if your originations have been increasing year to year, you are in a stronger position at the negotiation table for compensation. As a general rule, firms pay 33% of your portable business, so make sure the weighted average for your portable business over the past several years is going up and not down, or at least stabilized at a place you feel comfortable marketing.
2. Create A Market.
If you decided to move your practice to another platform, you should have a handful of suitors, but do not marry the first person you date without seeing who else is out there. Once you have decided to make a lateral transition, it is natural to want quick closure. However, partnership compensation is not lockstep or readily found in a guide. A good saying I heard from an L.A.-based rainmaker is that PPP (Profits Per Partner) is far less important than PPM (Profits Per Me). Oftentimes, law firms will match competing offers. If you have only one offer, you do not have leverage (other than not moving your practice and staying put). If you have several offers, they are rarely the same number and you can leverage them to negotiate higher compensation. Here is where it pays dividends to use a good headhunter who can tactfully negotiate compensation by positioning competing offers against one another. Without a headhunter, creating a market is more difficult to accomplish since you do not want to do the dirty work with your future employer. I was recently working with a partner who has a total cash compensation of around $1.2MM. Another firm offered $1.3MM. A second firm offered $1.6MM. Finally, the high offer came in from a third firm at $2MM. Here, there is clearly a floor and a ceiling, so negotiations are not created in a vacuum. Without competing offers, you should not expect more than a nudge up from your current compensation.
3. Create a Business Plan.
The more credible and concise your business plan, the more likely a firm will see your projections are precise. I understand the life of an attorney is a busy one; however, the little time it takes to put together a credible business plan will pay dividends in the long run. A firm’s Lateral Partner Questionnaire (“LPQ”) is oftentimes bare-bones and does not delve into your short-term and long-term plans. A business plan is a way to present your case and discuss your vision. Without a vision, firms are more likely to discount your LPQ numbers to give them a buffer in case your numbers prove accidentally inflated. Tailor your business plan for each firm’s platform. For example, if you have potential business in Mexico City and your current firm does not have a Mexico City office but the prospective firm has a strong Latin American practice, walk the prospective firm through how you plan to cross-sell an international platform to your current client base to service additional business you are leaving on the table. A business plan marries your past performance with your future potential, showing how you plan to continue to grow your practice given new synergies.
4. Satisfy A Firm’s Strategic Appetite.
Firms are looking for partners for different reasons. We all understand that most buy books for accretive growth while others have succession planning concerns. Some have platform expansion on their minds or an appetite to build a practice that cross sells nicely with an existing client base. Whatever the reason, firms prioritize certain hires for various reasons. Find out the reason a firm is looking before starting a conversion and respond to strategic areas where you could fill a prioritized hole. For example, if a firm is looking to open an office in a new city or hire a department chair where they currently lack one, the firm is more likely to pay a premium for the same partner where another firm may see this same partner as simply a bench player. Here is another area a headhunter proves valuable. A good headhunter will know the decision makers and understand the strategic need you fit (or lack thereof). Not all opportunities are the same. Just because a firm has a desire to meet with you does not address the reason for the appetite. Make sure to respond to strategic needs and not fishing expeditions.
5. Use a “Good” Headhunter.
This last point is fairly biased given my day job; however, I think it is one of the top five ways to maximize your lateral partner compensation package. Headhunters are not only rich resources, but they are free to you. It is our job to know the lateral market and to find you the firm that is the best fit and offers you the best compensation. This is a difficult task without intricate knowledge of the legal market, which is why a good recruiter can be invaluable. Sometimes I come across a partner who believes that a headhunter’s fee will reduce the budget available to bring on the partner and thereby offset his or her initial compensation package. That is simply not true. The budgets are not tied together. A good headhunter will actually improve your opportunity to maximize your compensation package by bringing transparency to the process. A good headhunter will drive the process forward, create momentum, and leverage information to bring two parties together to maximize their interests. Without a good headhunter, you are likely negotiating against yourself since you are not aware of the market, prior deals the firm has made, or strategic holes you are filling.
Compensation is not everything; being overcompensated will oftentimes lead to more harm than good in the long run. Over-committing and under-delivering is one of the main reasons partners feel pressured to move along shortly after making a transition. But you should not sell yourself short; make sure that you are compensated fairly and that you are valued for your contributions to the firm. If you follow the five basic tips above, you are off to a good start.
Lateral Link is one of the top-rated International Legal Recruiting Firms. With over 14 offices world-wide, Lateral Link specializes in placing attorneys at the most prestigious law firms in the world. Managed by former practicing attorneys from top law schools, Lateral Link has a tradition of hiring lawyers to execute the lateral leaps of practicing attorneys. Click ::here:: to find out more about us.