The Distribution Systems Of Chinese Law Firms (Part 1)
Which distribution system is most suitable for the development of law firms?
As a matter of fact, no distribution system is absolutely suitable for all law firms. "Specific analysis of specific issues", the choice of a particular distribution system usually depends on what strategic goals each law firm has customised for itself. (Here, we are talking about the deep understanding of each firm's own charm and organisational culture). There are currently seven different distribution systems that are commonly used in law firms(China)
The fundamental essence of the equal partnership system is that partners divided by levels have equal rights to distribute profits within their respective seniority levels, and it is generally applicable to small law firms or law firms in the start-up period.
By definition, Lockstep compensation is a system of remuneration in which employees' salaries are based purely on their seniority within the organisation --- this is also known as the "point-counting system". This system is predominantly used for equity partners of law firms. Different law firms have different points-based systems. Pure lockstep only uses seniority-based lockstep as the standard. The higher the seniority and the higher the number of points, the more profit sharing will be, regardless of the partner's performance.
However, in the practice of the Chinese market, in many cases, whether the partners are mainly responsible for market development, case operations, or law firm management, technology research and development, these contributions to the law firm can be converted into points, and seniority is not the only factor or even not the main factor.
Since partners participate in the profit distribution of the law firm based on their points, for partners, the overall revenue of the law firm is more important than the individual income at this time.
This model emphasises that the profitability of the law firm and the performance of the department/team are the most important. 50% of a partner's income comes from the sound financial status of the law firm, 40% comes from the performance of the business department or team, and the remaining 10% comes from the individual partner's performance.
The majority of the law firms in China still use a commission-based distribution system; however, for example, large firms such as King Wood & Mallesons focus on the overall professional firm development rather than counting the individual commissions of the partners. Eyes on the bigger picture help eliminate the restrictions from a commission-based system by paying more attention to the whole organisation while also benefit the core of a law firm: the clients.