Origination Credits: Good or Bad?
In a recent post, Peter Darling commented on a piece in ABA Journal on the desirablility of origination credits in which Martha Nell reported on a article that appreared in New York Law Journal. That article argued that origination credits should expire after a number of years. That way attorneys working the account could get credits to incentivise them to keep and expand it. Peter Darling argued that the attorney who originated the relationship should get the origination in perpetuity.
I respectfully disagree–and agree–with both positions. Compensation systems are tools to help a firm achieve its objectives. They cannot be decided on once and forever; they need to change over time. What’s right for a number of years won’t be right for all time. This is for two reasons:
1) A firm’s objectives change with time and circumstances. At one time it may need to stress cooperation in the sales effort, and so require shared originations. At others, it may want to focus on individual responsibility, so leaning towards sole origination credits. As the firm’s needs change, so must its compensation system, or sooner or later the firm will have its strategy and its compensation system in conflict with each other.
2) Any compensation system creates undesirable incentives as welll as desired ones. Reward people for bringing in a large account with long-term origination creddits and you create an incentive for some lawyers to grasp at credit for any and all contact they have had with a company before it became a client. After a number of years, any compensation system begins to suffer from having too many people trying to game it. It then needs refreshing or replacement.
Compensation systems are a way to reward performance. As the firm’s focus on different kinds of performance change, so must its rewards system. The challenge comes with successfully making the change. Every change in compensation system is likely to be met with an outcry of how it will destroy the firm and bring financial ruin to its attorneys. Push the change through, anyway, and two years later you will get a similar outcry from the same people when you try to replace the new system. Isn’t managing a professional service firm fun!