CASE: my own finding article
OWNER COMPENSATION IN THE LAW FIRM
“Increasing competition and a slow economy combined with desire to generate quick increases in partner income create a sharp focus on bottom-line profitability. Behavior contributing to that focus are the ones rewarded”
Law firm must consider their approach to owner compensation. (done with the approval of the managing partner and key senior owners)
They must create new compensation arrangement that fully understanding and always renewing.
The size of the law firm have a influence to the compensation process;
The bigger firm likely to have a formal system of business origination credits
Two-tiered parnertship structures are more prevalent in larger firm than in smaller ones
Larger family firms rely more heavily on compensation committees than do other size firm
Minggu, 16 Maret 2008
Owner compensation (article)
Owner compensation
Anonymous. Partner's Report. New York: Jun 2003. Vol. 03, Iss. 6; pg. 2
Abstract (Summary)
"These findings reflect what we're [now] seeing in the law firm market," notes [Altman Weil] principal James Cotterman. "Increasing competition and a slow economy combined with a desire to generate quick increases in partner income create a sharp focus on bottom-line profitability. Behaviors contributing to that focus are the ones rewarded."
» Jump to indexing (document details)
Full Text (570 words)
Copyright Institute of Management & Administration Jun 2003
To ensure survival in these rocky economic times, law firms must reconsider their approach to owner compensation. This must be done with the approval of the managing partner and key senior owners. Know, however, that this can take some effort: A partner from one Boston-based firm says the entire partnership met weekly for a long time to shape a compensation plan that all the partners would accept. Key: To minimize damage to firm culture and morale, everyone involved in and affected by the new compensation arrangement must fully understand the implications and be able to explain them.
To thoughtfully assess any changes in your distributions, owners need comprehensive data. One new, reliable source is Altman Weil' s (AW; Newtown Square, Pa.) 2003 Survey of Compensation Systems in Private Law Firms.
How are partner compensation plans evolving? In the AW data ranking of factors that determine compensation, business origination and personal fees collected are at the top; contribution to firm management falls at the midway point; and community involvement, professional involvement (such as writing, speaking, or teaching), and seniority are at the bottom.
"These findings reflect what we're [now] seeing in the law firm market," notes Altman Weil principal James Cotterman. "Increasing competition and a slow economy combined with a desire to generate quick increases in partner income create a sharp focus on bottom-line profitability. Behaviors contributing to that focus are the ones rewarded."
Additional findings from the AW study show significant differences by firm size:
* The bigger the firm, the more likely it is to have a formal system of business-origination credits. Nearly three-quarters (71.9%) of law firms with 100 or more attorneys use formal origination credits in the compensation process, compared to 63.6% of firms with 50 to 99 lawyers and only 40.1% of firms with fewer than 50 attorneys.
"It is obviously easier to have an intuitive understanding of how new business is generated in smaller firms than it is in larger firms," Cotterman explains. "However, it is good to see that many larger firms approach this issue without resorting to formal credit systems."
* Two-tiered partnership structures are more prevalent in larger firms than in smaller ones. According to the data, 65.6% of law firms with 100 or more attorneys prefer this structure, but only 28.1% of smaller firms do. In the lower tier of partnership, overall, 25% of partners make capital contributions to the firm, 27.2% have voting rights when electing senior firm management, and 53.3% share in profits beyond their salary or draw.
* Larger law firms rely more heavily on compensation committees than do other size firms, with 59.4% of firms with 100 or more attorneys having separate committees compared to 45.5% of firms with 50 to 99 attorneys and 18.8% of smaller firms. The most common configuration is to have a separate committee that overlaps the firm's management group. The partners elect committee members in a majority of firms.
[Sidebar]
"Increasing competition and a slow economy combined with a desire to generate quick increases in partner income create a sharp focus on bottom-line profitability.
[Sidebar]
For more information: Altman Weil's 2003 Survey of Compensation Systems in Private Law Firms (call 610-886-2000 for details) is based on data collected from 302 law firms in the fall of 2002. All survey data are reported by firm size and form of organization, including proprietorship, partnership, professional corporation, LLC, and LLP. Source: PR staff
Anonymous. Partner's Report. New York: Jun 2003. Vol. 03, Iss. 6; pg. 2
Abstract (Summary)
"These findings reflect what we're [now] seeing in the law firm market," notes [Altman Weil] principal James Cotterman. "Increasing competition and a slow economy combined with a desire to generate quick increases in partner income create a sharp focus on bottom-line profitability. Behaviors contributing to that focus are the ones rewarded."
» Jump to indexing (document details)
Full Text (570 words)
Copyright Institute of Management & Administration Jun 2003
To ensure survival in these rocky economic times, law firms must reconsider their approach to owner compensation. This must be done with the approval of the managing partner and key senior owners. Know, however, that this can take some effort: A partner from one Boston-based firm says the entire partnership met weekly for a long time to shape a compensation plan that all the partners would accept. Key: To minimize damage to firm culture and morale, everyone involved in and affected by the new compensation arrangement must fully understand the implications and be able to explain them.
To thoughtfully assess any changes in your distributions, owners need comprehensive data. One new, reliable source is Altman Weil' s (AW; Newtown Square, Pa.) 2003 Survey of Compensation Systems in Private Law Firms.
How are partner compensation plans evolving? In the AW data ranking of factors that determine compensation, business origination and personal fees collected are at the top; contribution to firm management falls at the midway point; and community involvement, professional involvement (such as writing, speaking, or teaching), and seniority are at the bottom.
"These findings reflect what we're [now] seeing in the law firm market," notes Altman Weil principal James Cotterman. "Increasing competition and a slow economy combined with a desire to generate quick increases in partner income create a sharp focus on bottom-line profitability. Behaviors contributing to that focus are the ones rewarded."
Additional findings from the AW study show significant differences by firm size:
* The bigger the firm, the more likely it is to have a formal system of business-origination credits. Nearly three-quarters (71.9%) of law firms with 100 or more attorneys use formal origination credits in the compensation process, compared to 63.6% of firms with 50 to 99 lawyers and only 40.1% of firms with fewer than 50 attorneys.
"It is obviously easier to have an intuitive understanding of how new business is generated in smaller firms than it is in larger firms," Cotterman explains. "However, it is good to see that many larger firms approach this issue without resorting to formal credit systems."
* Two-tiered partnership structures are more prevalent in larger firms than in smaller ones. According to the data, 65.6% of law firms with 100 or more attorneys prefer this structure, but only 28.1% of smaller firms do. In the lower tier of partnership, overall, 25% of partners make capital contributions to the firm, 27.2% have voting rights when electing senior firm management, and 53.3% share in profits beyond their salary or draw.
* Larger law firms rely more heavily on compensation committees than do other size firms, with 59.4% of firms with 100 or more attorneys having separate committees compared to 45.5% of firms with 50 to 99 attorneys and 18.8% of smaller firms. The most common configuration is to have a separate committee that overlaps the firm's management group. The partners elect committee members in a majority of firms.
[Sidebar]
"Increasing competition and a slow economy combined with a desire to generate quick increases in partner income create a sharp focus on bottom-line profitability.
[Sidebar]
For more information: Altman Weil's 2003 Survey of Compensation Systems in Private Law Firms (call 610-886-2000 for details) is based on data collected from 302 law firms in the fall of 2002. All survey data are reported by firm size and form of organization, including proprietorship, partnership, professional corporation, LLC, and LLP. Source: PR staff
Discussion of Separation of ownership from Control and Acquiring Firm Performance:
This article provide interesting and important new evidence relevant to the interpretation of the bidder’s abnormal return observed on the announcement date of mergers and acquisition and to the previously documented hypotheses that the separation of control and ownership result in value-destroying mergers and acquisitions as families use takeover to extract private benefits at the expense of minority shareholders.
Theoretical background
àTraditional paradigm in financial economics – agent are fully rational
à Mergers and acquisition are value maximizing decision and that the benefits from such decision should accrue to both the target and the bidder shareholder
à Study based on the long term performance report negative cumulative abnormal return up to 5 years following successful acquisition
à in Canada firm are closely-held mostly by families
à in particular, family ownership mitigates the agency conflicts as families are long-term investor, and thus take a long term view of the firm and they are concerned with the wealth transfer to the next generation.
The data and the methodology
à The Author use the event study methodology to estimate the announcement date abnormal return
Empirical evidence
à use a set of variables to control for the bidder’s ownership structure, the board characteristic, and cross-listing and set of other variables to control for the relative size of the target, its listing and cross-listing statues, the payment method, and for whether the target is in the same industry as the bidder.
àlarger company are likely to have larger boards, suggesting that the non-family companies are likely to be larger than the family firm.
à Family controlled firms are smaller than the controlled firm; they are more likely to rely on internal financing to finance their acquisitions
à Non-family firms are likely to use cash to finance their acquisitions because they can issue equity or bonds
Conclusion
“while the theoretically background on ownership structure is relatively well detailed, I find less argument relating to the various issues detailed in the literature on mergers and acquisition”
Theoretical background
àTraditional paradigm in financial economics – agent are fully rational
à Mergers and acquisition are value maximizing decision and that the benefits from such decision should accrue to both the target and the bidder shareholder
à Study based on the long term performance report negative cumulative abnormal return up to 5 years following successful acquisition
à in Canada firm are closely-held mostly by families
à in particular, family ownership mitigates the agency conflicts as families are long-term investor, and thus take a long term view of the firm and they are concerned with the wealth transfer to the next generation.
The data and the methodology
à The Author use the event study methodology to estimate the announcement date abnormal return
Empirical evidence
à use a set of variables to control for the bidder’s ownership structure, the board characteristic, and cross-listing and set of other variables to control for the relative size of the target, its listing and cross-listing statues, the payment method, and for whether the target is in the same industry as the bidder.
àlarger company are likely to have larger boards, suggesting that the non-family companies are likely to be larger than the family firm.
à Family controlled firms are smaller than the controlled firm; they are more likely to rely on internal financing to finance their acquisitions
à Non-family firms are likely to use cash to finance their acquisitions because they can issue equity or bonds
Conclusion
“while the theoretically background on ownership structure is relatively well detailed, I find less argument relating to the various issues detailed in the literature on mergers and acquisition”
Stakeholders, Governance, and the Russian Enterprise Dilemma
Introduction
Russia problem (economy):
first, the continuing lack of investment and restructuring in the corporate sector
is the “virtual” economy
What happens when manager are owners
àNo external monitoring
àNot limited to protecting minority shareholder or other financiers
owners-managers have to restructure firm and maximize their value over the long run
maximizing value is a reasonable long-term objective only if that value can be realized through the sale of the ownership right in enterprises
because dividend are taxable and have to shared with other stockholder, mainly employees, owners have been more inclined to withdraw cash from their enterprises by requesting reimbursement for fictitious expenses or engaging in other types of theft
Regional government exert influence
àregional governments àceded their power to : regions, regional admnstration
à taxable revenues of firm will have been reduced by cash-flow diversion
Barter and arrears as tools of control
“improved Russian bankruptcy procedures put in pace since 1998 have greatly facilitated the reorganization of insolvent companies”
Russia problem (economy):
first, the continuing lack of investment and restructuring in the corporate sector
is the “virtual” economy
What happens when manager are owners
àNo external monitoring
àNot limited to protecting minority shareholder or other financiers
owners-managers have to restructure firm and maximize their value over the long run
maximizing value is a reasonable long-term objective only if that value can be realized through the sale of the ownership right in enterprises
because dividend are taxable and have to shared with other stockholder, mainly employees, owners have been more inclined to withdraw cash from their enterprises by requesting reimbursement for fictitious expenses or engaging in other types of theft
Regional government exert influence
àregional governments àceded their power to : regions, regional admnstration
à taxable revenues of firm will have been reduced by cash-flow diversion
Barter and arrears as tools of control
“improved Russian bankruptcy procedures put in pace since 1998 have greatly facilitated the reorganization of insolvent companies”
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