With this column we inaugurate a new and, we hope, long-running feature on Adam Smith, Esq.: A question of the month. Questions will vary, widely we suspect, and we invite readers’ suggestions for suitable future questions. We prefer them to be–and will strive to do this with our own questions–serious minded but also slightly unorthodox in the explicit or implicit perspective they adopt. And of course if readers don’t respond much to this feature, we can always kill it! (That’s the nice thing about being the publisher.)
So without further ado, our first question of the month:
Is “origination” just a nicer term for “sales commission?”
If so, does it matter?
And are there implications for Law Land?
In Corporate Land, people at companies, be they salespersons or in some kind of business development function, are often award a % of the sales they generate. In some cases, their compensation is entirely commission-based and in others commissions are one element of their overall compensation package. Generally, the commission sunsets over a period of three or so years.
Does this sound fundamentally different than origination credit?
We ask because origination, be it for new clients or new matters from existing lients, is increasingly a key criterion in law firm compensation systems. We say this based on our extensive work with firms redesigning or fine-tuning their compensation systems; this is one of the most frequent issues (“pain points,” if you will) we’re asked for guidance on.
Origination credit is not a key ingredient for all firms, to be sure–for example, this is generally less so for UK-based firms. But as for origination/sales commission credit, of course there are some economically rational and very understandable reasons for this. Within an overall no/slow growth environment and a battle for market share, increasing revenue is ever mroe challenging. So, more aggressively valuing and rewarding origination over, say, personal billable receipts, could make sense.
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Please use the comments box below for your further thoughts.
I have long thought about and had conversations with friends about how law firm accounting, profitability, and incentives would differ if “origination” were treated as sales commission.
At minimum, doing so would help make explicit the components of partner compensation: the labor value of his or her work + dividend (aka share of profit) + sales commission.
It might also prompt open-minded owners to consider that hiring professional sales people might yield higher total margins (and more sales) than having partners sell. Not saying it’s necessarily true – only that it would make clear the potential trade-offs.
Last point: names matter. A May 25 article in the WSJ points out this is true even in science: “I figured out how quarks and gluons behave, we proposed calling it the “non-abelian gauge theory of the strong interaction.” Others subsequently called it “quantum chromodynamics.” Guess whose name stuck.” I’ve read similar articles arguing that there are many MSM articles about CRISPR because the name is cool.
Calling something what it really is could change the dialog. Origination seems abstract. Sales commission is very clear.
If I follow along with that logic, then firms that focus on growth will need an effective, disciplined, incentivized, and well-supported sales and marketing team in order to maximize sales (or origination). However, in many firms only the lawyers are supported and incentivized for origination.
I’ll just stop right there.