Best Practice #5: Redesigning origination credit

Sixty percent of firms in the survey do not formally award origination credit. Yet even in firms without formal origination credit, origination often plays a central role in the setting of law firm compensation. Old-fashioned origination credit could usefully be redesigned in a number of ways:

  • Origination credit should not be inheritable. If the purpose of origination credit is to incentivize lawyers to bring in new clients, it is hard to discern the rationale for allowing the partner who “owns” the client to pass on origination credit to whomever he or she wants. This practice has very negative effects both on diversity and on the perceived fairness of a firm’s compensation system.
  • Reward teams, not individuals. The point of a law firm is to build teams of lawyers that, together, can serve a client’s interests better than a sole practitioner could. As noted above, consultants often advocate systems that recognize a variety of contributions to a given client’s work. One step in this direction is the common practice of dividing credit among three or more attorneys: the one who brought in the work, the billing partner, the partner who manages the client relationship, and the partners who actually do the work. Obviously, if the weight given to origination credit swamps the other factors considered, the resulting system will differ little from old-fashioned origination credit. Another alternative is to shift away from origination credit, towards an analysis of whose work currently binds a given client to the firm. Less than one in five majority equity partners and only roughly one in six income- and minority equity partners reported this kind of system when asked what factors were considered “very important” in setting compensation. Yet a majority of firms appear to already be engaged in this calculation: 66% of majority equity partners, 63% of minority-equity partners, 60% of majority income partners and 45% of minority-income partners said this factor was either “important” or “very important.”
  • Origination credit by matter, not by client. A complementary practice is to reward origination credit according to who brings in a given matter, rather than who first introduced the client to the firm. Along with that, suggest that expansion of work does not go to first contact, but to the expander and also spread among the other secondary roles — important because women and minorities are more likely to be expanders than first contacts. Finally, suggest the sunset and then acknowledge how difficult change is.
  • Sunsets. Some firms have a three-year sunset on origination credit. “At that point,” said James G. Cotterman of Altman Weil, “either new business credit ceases or is reduced. Other compensation credits, such as billing attorney credit and working attorney credit, would remain in most systems and palliate the abrupt reduction in new business credit.” Sunsets recognize the importance of origination, while also ensuring that different lawyers have relationships with a given client, to ensure that the client stays with the firm even if a single attorney on the team serving the client leaves.
  • Pitch credit. A pervasive complaint by both women and people of color is that they are invited on pitches in order to appeal to in-house departments intent on diversity—but then get no origination credit. This could be eliminated by a clearly stated and widely disseminated policy to the effect that, if a woman or person of color is invited on a client pitch, that attorney needs to be given part of any origination credit that results from the pitch—and part of the work.