How your law firm compensates partners is of course a financial decision, but it’s also a strategic process that needs to consider multiple factors. For example, how your firm chooses to reward partners reflects firm values, shapes behavior, drives growth, and influences long-term success.
There isn’t a one-size-fits-all solution, so understanding the different compensation models available, their advantages and challenges, and when to use them is essential.
The right model depends on your firm’s goals, culture, and client mix. In this article, we’ll break down the most common attorney compensation models, explore their pros and cons, and discuss how your firm can use financial data, like revenue and origination tracking, to build a fair, motivating structure.
We’ll also show how tools like Centerbase’s profitability reporting can help you analyze partner performance in a meaningful way, ensuring your compensation strategy is grounded in actionable insights.
Any compensation model must address the core question of how to divide the firm’s profits.
Most firms do this with some form of a profit-sharing model, whether they split profits equally, reward individual performance, or take a blended approach. Regardless, the goal of profit-sharing is to drive firm-wide success while rewarding contributions that matter.
Here’s a quick overview of the most common profit-sharing structures:
Equity partners are firm owners. This means they share both profits and losses, have voting rights, and have long-term financial incentives tied to the firm’s performance.
On the other hand, non-equity partners hold senior roles but don’t have an ownership stake. Their compensation is typically salary-based, with bonuses tied to metrics like billable hours or client retention.
Each structure serves a different purpose. Equity roles encourage long-term investment and leadership, while non-equity roles encourage firm support and emerging leadership.
Many firms recognize the value of client development by assigning origination credits, where partners receive a percentage of the revenue from the clients they bring in.
To illustrate how significant originations can be, the 2024 Compensation Report: Law Firms by Law360 Pulse found that non-equity partners reported a median origination value of $400,000, while equity partners reported a median of $1.3 million.
It’s clear that origination credits can be powerful incentives, but if they are not managed carefully, they can lead to turf wars or discourage collaboration.
Some firms tie compensation directly to hard numbers based on billable hours, collections, or matter revenue. This approach ensures transparency and rewards productivity, but it may undervalue softer contributions like mentorship, internal leadership, or firm culture.
In more traditional setups (often smaller firms), a compensation committee or firm leaders might allocate profit shares based on subjective performance assessments—such as leadership contributions, mentoring junior associates, attending community events, etc.—rather than using data-based formulas.
This has pluses and minuses. It gives firms flexibility to recognize “soft” yet meaningful contributions. But because these types of contributions are difficult to define and measure, it can lead to perceived favoritism or confusion about how profit sharing is determined, which erodes trust and motivation among partners.
A well-designed partner compensation model reinforces the values and goals of the firm. A misaligned one can create tension, underperformance, and turnover. In this section, we break down the most common partner compensation models, exploring how they work, their strengths and challenges, and when each model makes the most strategic sense.
As we discussed earlier, equity partners are firm owners who share both profits and losses. Their compensation is typically tied to their ownership stake, which reflects their long-term investment and commitment to the firm.
Advantages:
Challenges:
Three Buckets of Equity Partner Compensation
To ensure fairness and alignment with law firm profitability goals, you can break equity compensation into three categories:
Segmenting compensation this way allows firms to clearly define what they’re rewarding, making it easier to align compensation with the firm’s priorities.
When It Works:
This model works best in firms that prioritize long-term commitment, firm stewardship, and collective success. It’s particularly effective when equity partners wear multiple hats and expect to be rewarded beyond billable time for responsibilities like leadership and business development.
Non-equity partners hold leadership or senior attorney roles without an ownership stake in the firm. They often earn a fixed salary, with potential bonuses based on individual performance.
Advantages:
Challenges:
When It Works:
The non-equity model is ideal for firms that want to retain and motivate talented senior attorneys without offering them ownership. The model is also an effective transitional stage for attorneys working toward equity or for firms that don't want to expand equity partnerships.
In the lockstep model, compensation increases over time based on an attorney’s tenure rather than their individual performance. Partners at the same seniority level are generally paid the same, regardless of their billable hours or revenue generated.
Advantages:
Challenges:
When It Works:
This model works best in firms that emphasize long-term client relationships, professional development, and internal cohesion over aggressive business development. It’s often seen in firms with deep institutional clients and a strong culture.
In this structure, compensation is tied to metrics like revenue generated, billable hours, client origination, or other contributions. It’s often used to reward individual achievement and drive firm growth.
This model aligns closely with current industry trends. According to the 2024 Compensation Report: Law Firms by Law360 Pulse, 30% of equity partners are compensated using a formula-based model, which directly ties their earnings to measurable performance. Another 22% use a hybrid model, and 17% rely on subjective assessments. These findings reflect a shift toward performance-driven structures, especially at smaller and midsize firms where transparency and metrics play a bigger role in partner compensation.
Advantages:
Challenges:
When It Works:
A performance-based model is ideal for firms that prioritize aggressive growth and want to reward business development and high productivity. It works best when paired with clear key performance indicators and guardrails to prevent negative cultural side effects.
A hybrid compensation approach combines elements of several models and typically includes a base salary, discretionary bonuses, performance incentives, and equity considerations. It aims to provide the best of multiple systems.
Advantages:
Challenges:
When It Works:
This model is ideal for mid-sized and larger firms with diverse practice areas and partner profiles. It offers flexibility while ensuring partners are rewarded both for individual achievement and for contributing to firm-wide goals.
Again, Law360’s 2024 data support this trend. Hybrid compensation models are used by 22% of equity partners and 18% of non-equity partners, especially at midsize and large firms. This flexibility is a major reason hybrid models are gaining traction in firms with evolving priorities and diverse partner contributions.
Rather than focusing on billables or origination alone, profit- and revenue-sharing models align partners’ compensation with the firm’s profitability or total revenue and overall health.
Advantages:
Challenges:
When It Works:
Profit- and revenue-sharing models work well for firms with a collaborative culture and a balanced mix of contributors. They help firms prioritize collective achievements and minimize internal competition.
Even with the right model in place, creating a truly effective partner compensation system is challenging. Here are some of the most common (and costly) challenges law firm leaders face in designing partner compensation.
You need to reward top performers without alienating others. A system that is too rigid may fail to retain high-value contributors, while a system that’s too individualistic can fracture collaboration. Balance is the key.
If your firm values cross-selling between practice groups, does your compensation model reflect that? What about mentoring junior attorneys or investing in succession planning? Too often, firms unintentionally reward behaviors that don’t move the needle. Strategic compensation requires clearly defining what the firm values and then rewarding it.
You must reward the behaviors that reflect what your firm values most, whether that’s developing clients, mentoring associates, or growing cross-functional teams.
Multi-partner firms with hybrid models often juggle salary, bonuses, origination, profit shares, and subjective criteria. Without clear guidelines for evaluating contributions and compensating them, complexity can erode partners’ trust in the system.
Transparency in how compensation decisions are made is a growing concern in the legal industry. According to the 2024 Law360 Pulse Compensation Report, 53% of attorneys said their firms do not have transparent pay structures, and another 17% said they were only partially transparent.
This matters because transparency directly affects satisfaction, employee retention, and morale. At firms with fully transparent pay structures, 75% of associates and 50% of non-equity partners said they were satisfied or very satisfied with their compensation. In firms with no transparency, those numbers drop to 31% and 35%, respectively.
A transparent structure, communicated consistently, ensures attorneys know what’s expected and what compensation is possible.
Mentorship, internal leadership, and firm culture contributions matter, but they’re harder to measure. A robust compensation system should account for these intangibles alongside revenue generation.
To sustain long-term firm growth, compensation structures should encourage senior partners to mentor and elevate rising talent. Clear policies around equity buy-ins, financing options, and eventual retirement or de-equitization help make transitions smoother for individuals and the firm alike.
At the end of the day, there’s no one-size-fits-all partner compensation model. The best strategy is the one that reflects your firm’s unique goals, values, and talent mix.
But here’s the key: your compensation model shouldn’t be static. It needs to evolve with your firm, and it should be rooted in real data.
That’s where Centerbase’s profitability reporting comes in. Law firm leaders gain the insights they need to:
These insights matter more than ever. The 2024 Law360 Pulse Law Firm Compensation Report found wide disparities in both earnings and satisfaction across roles, firm sizes, and compensation structures. Firms that track profitability, origination, and performance in a structured way, not just intuitively, are in a better position to create compensation models that drive engagement and reward meaningful contributions.
Whether you’re revisiting an outdated system or building a new one from the ground up, Centerbase helps you turn complex data into confident decisions.
Book a demo today or learn more about Profitability Reporting.