Revenue Sharing Program Frequently Asked Questions (FAQ)
Overview
The Revenue Sharing Program (“RSP”) is a tiered incentive-based compensation arrangement for eligible attorneys and senior attorneys at Gravis Law, PLLC. Under the RSP, an attorney will share revenue collections after reaching the Revenue Sharing Tiers, with his or her revenue share increasing in each tier. Revenue sharing compensation ranges up to 45% of an attorney’s collected revenue over their minimum collection requirement tier.
Please Note: ** Associate attorneys generally do not participate in the RSP and receive discretionary bonuses based on management targets such has hours worked and revenue collections. This is also true for those engaged primarily in contingency fee-based representations
Definitions
The RSP Program tiers are defined as follows:
Minimum Collection Requirement
An attorney is assigned an individualized “Minimum Collection Requirement” based on his or her salary, a general overhead expense allocation, and a staff utilization allocation. The Minimum Collection Requirement represents the net minimum collected revenue necessary, per attorney, which may be expressed on a monthly, quarterly, or annual basis. This is an individualized production requirement necessary to maintain full-time employment status. Please note that as staff utilization increases during the quarter, the Minimum Collection Requirement will also increase proportionately.
The Minimum Collection Requirement Tier commences at an amount equal to an attorney’s Total Expense Allocation and ranges up to 115% of that amount
Total Collected Revenue
The Total Collected Revenue is calculated as follows:
- Attorney revenue collections. Attorney revenue collections relate to work the attorney has performed which have been paid and cleared the bank account and reflected in an attorney’s metrics during the specified period. For matters which have balances in trust, amounts will be included as revenue collections in the period in which the invoices are approved.
- Support staff revenue collections. Support staff collections relate to work billed by the support staff on matters where the attorney is designated as the primary attorney in Clever Case that have been paid and cleared the bank during the specified period and reflected in the support staff’s metrics during the specified period. They are allocated to the primary attorney proportionately to use. If Justin Wilson (the billable staff) generates $1,000 on a matter this revenue will be allocated to the primary attorney of the matter. **
- Other credits, as applicable. Other credits are determined on an individualized or team level. An example of other credits is origination credits.
Please Note: **Matters charged as a flat fee have 100% of the collected revenue recognized only as the primary attorney’s revenue and no staff revenue will be recognized although support staff expenses will still be allocated. This will artificially inflate the attorneys’ effective hourly rate and fails to capture the actual benefit of having support staff perform flat fee work
Total Expense Allocation
The Total Expense Allocation is derived from the sum of the following inputs:
- The attorney’s base salary. This is an attorney’s gross base salary --- or, more accurately, one-fourth of the annual base salary. We are intentionally trying to keep this calculation of salary simple. For instance, if John (the attorney) has an annual salary of $80,000, $20,000 would be allocated on a quarterly basis.
- Indirect overhead assumption. Indirect overhead is assigned on a per-quarter basis, in the amount of $31,000 for senior attorneys and $35,000 for attorneys, this is a change from the original $28,000 for senior attorneys and $32,000 for attorneys at the start of the program. The indirect overhead assumption accommodates firm costs associated with supporting the practitioners which are equally available for utilization by all attorneys. Such costs include but are not limited to company benefits, office rents, leadership, operations support, finance/collections, communications team, reception and file clerks, teambuilding, events, technology, software licenses, bar licenses/CLE, staffing/recruitment, research tools, marketing, and client pipeline. This is a fixed allocation and is designed to provide the maximum benefit to practitioners at the most reasonable and administratively simple allocation possible.
- Support staff wages and benefits. This amount includes an attorney’s proportionate utilization of Support Staff (paralegals, law clerks, legal assistants, or other specifically designated employees) wages and benefits. Proportionate allocation is actual time utilization taken from Clever Case as applied to matters where the attorney is designated as the primary attorney in Clever Case. It does not include administrative time for special projects with SMA approval. Under this program, an attorney who utilized three support staff will have a different allocation than an attorney who only utilizes one or a portion of support staff. Time a support staff uses for personal time off is not allocated to the attorney.
Please Note: Gravis Law retains the discretion to alter these calculations/allocations (e.g. increasing/decreasing Support Staff burden allocations, Indirect Overhead Assumption amounts, etc.) in any future period.
Revenue Sharing Tier Participation Rates
An attorney’s participation rate ranges up to 45% of an attorney’s collected revenue over his or her revenue sharing targets. The participation rates range depending on specified practice area and attorney tenure. Participation rates increase in each revenue sharing tier. Currently attorneys earn 20% and 35% for revenue sharing tier 1 and tier 2, respectively, and senior attorneys earn 30% and 45% for revenue sharing tier 1 and tier 2, respectively.
Consistency Incentives
Attorneys are also eligible to receive an annual bonus if they consistently meet and exceed their Collection Targets or other performance related goals. Under this program, an attorney may be eligible for up to an additional $25,000, annually. Attorneys will earn stars, which will determine the amount of the bonus.
For each quarter in which an attorney reaches their Revenue Sharing – Tier 1, or Revenue Sharing – Tier 2, he or she will receive one or two stars, respectively. Consistency Bonus payment amounts are as follows:
- 5 stars - $10,000
- 8 starts - $16,000
- 12 stars - $25,000
Management may grant discretionary stars.
Revenue Sharing Program Examples
Example 1: Attorney
Total Revenue Collections: John Smith, attorney, has attorney revenue collections of $75,000 this quarter. John has not used any staff and does not receive other credits. Therefore, John’s total revenue collections are $75,000 for the quarter.
Total Expense Allocation: John has an annual salary of $80,000 with a quarterly allocation of $20,000 ($80,000/4 quarters). As an attorney, he has a fixed overhead amount of $35,000. He did not use any staff, therefore, does not have an expense for support staff wages and benefits. John’s total expense allocation and Minimum Collections Requirement for this quarter is $55,000 ($35,000 overhead + $20,000 salary).
Revenue Sharing – Tier 1: John will not receive revenue sharing compensation until he reaches his Revenue Sharing Tier 1. John reaches his Revenue Sharing Tier 1, when he collects 15% over his Minimum Collections Requirement, which for him is $63,250. He receives a participation percentage in Tier 1 of 20%. As such, he received $2,350 for his quarterly Revenue Sharing Compensation for Tier 1.
Revenue Sharing – Tier 2: In order for John to reach his Revenue Sharing Tier 2, he needed to collect 55% over his Minimum Collections Requirement, which for him was $85,250. At this time, John will not receive incentive compensation for Tier 2.
Consistency Incentive: As John reached his Revenue Sharing – Tier 1, John will receive one star for his collected revenue this quarter.
Total Annual Compensation: If John continued to perform consistently throughout the year, Johns Total Annual Compensation would be $89,400 ($80,000 base salary + ($2,350 X 4 quarters) revenue sharing).
Example 2: Senior Attorney
Total Collected Revenue: Jane Johnson, senior attorney, has attorney revenue collections of $120,000 this quarter. Jane’s support staff revenue collections are $10,000 for the quarter. Jane’s Total Collected Revenue is $130,000 ($120,000 her collections + $10,000 staff collections).
Total Expense Allocation: Jane has an annual salary of $120,000 with a quarterly allocation of $30,000 ($120,000/4 quarters). As a senior attorney, she has a fixed overhead amount of $31,000. She used billable staff and has a $20,000 expense for support staff wages and benefits. Jane's total expense allocation and Minimum Collections Requirement for this quarter is $81,000 ($31,000 overhead + $30,000 salary + $20,000 staff expense).
Revenue Sharing – Tier 1: Jane will not receive revenue sharing compensation until she reaches her Revenue Sharing Tier 1. Jane reaches her Revenue Sharing Tier 1 when she (and her utilized staff) collect 15% over her Minimum Collections Requirement. Jane’s Revenue Sharing Tier 1 begins at $93,150. She receives a participation percentage in Tier 1 of 30%. As such, Jane will receive $9,720 for her incentive compensation for Tier 1.
Revenue Sharing – Tier 2: In order for Jane to reach her Revenue Sharing Tier 2, she needed to collect 55% over her Minimum Collections Requirement, which for her was $125,550. She receives a participation percentage in Tier 2 of 45%. As such, she will receive an additional $2,002.50. In total for the quarter, she will receive revenue sharing compensation of $11,722.50 (9,720 Tier 1 + 2,002.50 Tier 2).
Total Annual Compensation: If Jane continued to perform consistently throughout the year, Jane’s Total Annual Compensation would be $197,230 ($120,000 base salary + ($13,057.50 X 4 quarters) revenue sharing + $25,000 consistency incentive (12 stars)).
Revenue Sharing Compensation Calculator
In order to assist an attorney in estimating annual personal total compensation, a Revenue Sharing Compensation estimator is attached.
Revenue Sharing Program Payment Timing
Revenue Sharing-Tier 1 will be paid within three calendar months following the period in which the payment is earned. For instance, during the period January through March John earned incentive compensation of $2,350, his payment will be paid by the end of June.
As a further incentive for reaching Revenue Sharing – Tier 2, payment for Tier 2 will be paid within two calendar months following the period in which the payment was earned. For instance, from January through March Jane earned incentive compensation of $11,055 for Tier 1 and $2,002.50 for Tier 2, her payments will be made in the amounts of $2,002.50 by the end of May (Tier 2) and $11,055 by the end of June (Tier 1).
Consistency incentives will be paid four calendar months after the program's year-end (April).
Employees must be employed as of the payment date to receive their incentive compensation.
Management is working on an advancement program to allow consistent performers to draw incentive compensation earlier than as described above.
Payment Calendar
The payment calendar for Collected Revenue earned through December 31, 2022, is as follows:
Revenue Sharing Program Tracking and Visualizations
All metrics will be presented and updated in Power BI dashboards. There are a series of dashboards for each attorney, with increasing calculation visibility on each.
The first dashboard is designed to give the user a quick snapshot as to how they are performing for the quarter. A large gage shows an attorney’s quarter to date collected revenue against the Revenue Sharing Program Tiers:
collection deficit (red), Minimum Collection Requirement Tier (yellow), Revenue Sharing – Tier 1 (light green), Revenue Sharing – Tier 2 (dark green). An attorney can see their total collected revenue for the period, bonus earned for the period, consistency incentives (stars) earned, as well as effective hours and his or her effective rate. The attorney can toggle between quarters to see historical information.
The second dashboard shows the details of collected revenue sources and expense allocation amounts.
The third dashboard, the support staff dashboard will give visibility into the staff allocated to the attorney.
Dashboards will update with changes in staff utilization.
Mangers retrofitted with Gravis Law’s prototype Manager technology suite will have visibility into their direct reports’ dashboards.
Missed Minimum Collection Requirements
If the minimum collection requirement was not met in the previous quarter, the deficit will be added to the current quarter. Exceptions may be granted for individualized circumstances (for instance, new hires).
If the minimum collection target is missed, please coordinate with management to determine the root cause issue. This is a serious conversation about how to resolve any issues, and for staff/firm to align expectations for success. At this time, a performance improvement plan may be established. This is not a defacto termination. We want everyone to set and meet goals and succeed at Gravis Law, PLLC.
Please Note: Gravis Law retains the right to alter, change or terminate the Revenue Sharing Program at any time. Revenue Sharing Compensation payments and payment terms are at the discretion of management.
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