Understanding Lateral Partner Bonuses
The world of lateral partner bonuses can be a bit murky, yet it's a crucial topic for those considering a move in the legal field. Partner compensation structures vary drastically, and bonuses can be a large element of overall compensation. Here, we break down what these bonuses entail and how they fit into the broader compensation structure.
The Structure of Lateral Partner Bonuses
The approach to bonuses isn't one-size-fits-all, but lateral partner bonuses typically fall into three categories:
Signing Bonus: This one-time payment is more common at the associate level but may occur if the partner possesses critical expertise that the firm urgently needs. Firms may also consider a signing bonus if the candidate has something exceptional in their background.
Make Whole Bonus: More common, this compensation ensures the partner doesn't suffer financial loss due to unpaid bonuses or profit sharing from their former firm. This bonus helps partners move anytime without having to consider their current firm's bonus time-frame.
Performance Bonus: This is tied to a partner's performance and contribution throughout the year, often part of the first-year compensation agreement rather than a traditional bonus.
Other Important Compensation Elements
Lateral partners typically are compensated based on their book of business. In most cases, compensation for the first year or two is negotiated upfront and usually includes a guaranteed minimum amount of compensation or a draw with a percentage of originations.
In these situations, there may be an end-of-the-year "True Up" that pays out the agreed-upon amount. This may look like a bonus, but it is considered part of your normal compensation.
While every firm is different, guarantees regarding compensation for the existing calendar year and one additional year are common in the industry. In some cases, firms will provide two to three-year guarantees, but these are rare. Most firms recognize that transitioning involves risks and can impact a partner's book of business. If given a choice, focusing on a strong guarantee over a bonus may be more beneficial.
In addition to guarantees, some offers include a percentage of originations. Firms vary in compensation structure, but negotiating a higher percentage may ultimately be a smarter move than focusing on a one-time bonus. It also shows the firm that you are willing to bet on yourself by linking your compensation to your ability to bring in clients.
Final Thoughts
When negotiating your lateral partner compensation, it is crucial to consider more than just the immediate financial incentives. Navigating lateral partner compensation and bonuses requires a deep understanding of all the options and strategic planning.
For tailored advice on your compensation or possible career changes, arrange a call with a member of the Foxstone Recruiting team to explore your options.
