Construct Legal and Stewart McKelvey both reported higher satisfaction and retention after pay model shifts
Pressure from clients for transparency and value is prompting law firms to reassess their compensation models for lawyers, with traditional approaches increasingly scrutinized. “When compensation was based on the billable hour, people would focus on things they could do, easy things they could do to rack up their rates,” Faren Bogach, founder and lawyer at Construct Legal, recently said at a panel at the Canadian Legal Summit entitled “Will traditional compensation models survive the future of law?” She pointed out that this system rewards inefficiency, with lawyers incentivized to spend more time rather than deliver better outcomes.
Bogach launched her firm in 2022 after working at a large law firm, and she described a journey from opaque, top-down pay structures to a radically transparent profit-sharing model. “I opened a full transparency model where everyone could see everything about the firm. I had no guaranteed cash flow. I was funding the business for the first while. So, my deal was lower salaries, and I’ll give you a profit share. And that was for staff and lawyers, for anyone [who] would come on,” she said. The model tied compensation to a maximum, not minimum, billable hour, and emphasized teamwork, efficiency, and client focus. “We’ve had almost no turnover in four years,” Bogach said.
Paul Saunders, chief strategy & innovation officer and partner at Stewart McKelvey, brought a large-firm perspective to the panel. A decade ago, his firm faced declining realization rates, with partners rewarded almost exclusively for personal billings. “If you did anything other than generate personal billings, you weren’t leaving as much on the table. If you were in a firm role, you were the managing partner, you were on our comp committee partnership board, you were a big business developer, you had a large book of business, those behaviours weren’t meaningfully rewarded. We were rewarding personal productivity,” Saunders said.
That approach stifled collaboration and led to partners hoarding work. “What [was] our strategic plan? Hoard work, don’t delegate, maximize the personal billings that you get, regardless of the profitability of that engagement. That is a fundamentally flawed strategy and a complete inconsistency,” Saunders said. The firm responded by overhauling its compensation system, bringing in outside consultants, and consulting with half of its partners to identify what worked and what needed to change. The result was a system that explicitly rewarded a range of behaviours, from business development to mentoring and firm leadership, with clear metrics and transparency around how pay decisions were made.
Transparency, both panellists said, is critical. Bogach recalled annual reviews at previous firms where associates would “pitch for your salary, even though they’d already decided what it was.” She now shares all firm financials with her team, including costs, taxes, and her own compensation. “Sharing that information sometimes helps them realize, ‘Wait a minute, while we might be making all this money, there’s still these costs associated.’ So it helps with the compensation conversation when they have an idea of the cost of running the business,” she said.
Saunders agreed that transparency is essential, but he noted the need for balance. “You need three things in my view, alignment, transparency, and consistency, if you’re meaningfully going to be able to propel your firm forward to achieve the goals of your strategic plan. If you don’t have all three of those, even if you’ve got two, all three are necessary in order to move a firm forward, and transparency is absolutely essential at every element of comp,” he said.
Both panellists highlighted the dangers of compensation systems that reward origination or personal billings above all else. “If you think about a compensation system that’s primarily focused on origination, you’re going to get a fixed percentage of all the revenue that your name is attached to forever, indefinitely. What kind of behaviour is that going to drive? Bad. Horrible work. Bad. It’s disincenting any collaboration,” Saunders said. Instead, Stewart McKelvey now allocates income to different “buckets” – new business development, client matter management, firm roles – and makes the criteria for each explicit.
Bogach’s profit-sharing model has shifted behaviour at her firm. “When they understand that these costs are affecting their compensation, they are making different decisions, or they are complaining less about decisions you have made because they understand that there’s a cost associated with it. [For example], we went to a cheaper place for dinner so you can get paid more,” she said.
The panel also tackled the impact of compensation models on recruitment and retention. Bogach attributed her firm’s low turnover to the sense of value and fairness her system creates. “People feel valued, and one of the big things they feel valued by is their compensation. So we have a maximum amount of hours they can work a year. They agree to it. It’s 1750. I would have said less, but that’s what the number they wanted because they wanted to max their money and all that stuff. And then they are paid a percentage profit. So they’ve worked less and made more money than they could have before,” she said.
Saunders pointed to similar results at Stewart McKelvey, where the firm has lost just one partner to a competitor in six years and has successfully recruited laterals frustrated by opaque, seniority-based systems elsewhere. “We see our compensation system as a competitive advantage. When people are coming to us and we’re looking at laterals, we’ll share elements of our compensation system, give them that same calculator, show the criteria. And many of them are frustrated at being at other firms. They don’t like origination credits. They don’t like the fact that these older lawyers [who] have these big books of business are taking all the profit and income for themselves,” he said.
Looking ahead, both panellists saw compensation as a lever for driving strategy and adapting to technological disruptions, such as the use of artificial intelligence. “I think having a compensation system that is aligned with your strategic plan is an essential ingredient to survive and thrive in this AI era,” Saunders said. Bogach added, “[AI is] making us better. We can be more efficient. People are doing the work they want to be doing and not the work they don’t want to be doing… It’s making our lawyers and staff happier because some of the things that they didn’t want to do before, they’re getting AI to do it,” she said.
The panel was moderated by Jacquelyn Stevens, a partner at Willms & Shier Environmental Lawyers LLP, and introduced by the conference's co-chair, David Milosevic, managing partner at Milosevic & Associates.
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