From pay packages to partnership prospects, law firms are rethinking their approaches to attracting and retaining talent. George W Russell reports on the changing face of compensation and benefits in India’s legal market
What is an Indian lawyer really worth? “How long is a piece of string?” responds Shalini Agarwal, a London-based partner at Clasis Law. The short answer, say most lawyers, is whatever the market will bear. But there are a surprising number of factors that affect legal salaries in India.
Firms vary widely from large full-service combines in Mumbai and Delhi to nimble technology boutiques in Bangalore and venerable, if slow-moving, local firms in Kolkata and Chennai. “We have yet to achieve uniformity and standardization in the ways of law firm functioning and governance,” says Juhi Garg, the India partner at Edge International, a consultancy that advises law firms.
Until this standardization is reached, say consultants, Indian lawyers will continue to bemoan the relatively low salaries and retainers that make them so attractive to international firms keen on outsourcing legal tasks from higher-income locations.
In terms of actual rupees paid, the salaries of Indian lawyers vary widely. “The range of salaries in our firm is varied and is completely dependent on the experience and capabilities of the individual lawyer,” says Ritambhara Agrawal, the managing partner of Intelligere, a Delhi law firm.
For first-year associates, the salary spread is breathtaking. “It could be anything from ₹15,000 [US$335] to ₹100,000 [US$2,230] per month,” says Bithika Anand, the founder of Legal League Consulting in Delhi, which provides strategic advice to about 25 Indian law firms. Research by law colleges in India suggests that a monthly salary as high as ₹130,000 [US$2,900] for a freshman associate at a large, internationally-oriented firm, is not unheard of.
A table showing the average salary ranges of lawyers of different levels of experience is shown on page 45.
Most Indian lawyers do not do too badly on a purchasing-power-parity basis. “Large Indian firms’ salaries would be more or less equivalent to those of international firms, considering and comparing the cost of living and currency exchange,” says Dinesh Sharma, the head of legal recruitment at Personnel Junction in Delhi.
For their part, law firm managers say salaries have been increasing sharply, especially for top talent. “The salaries budgets have been steadily increasing at par with market practice and the general salary inflation in India,” says Rabindra Jhunjhunwala, a partner at Khaitan & Co in Mumbai. “On average, top performers have been receiving substantial pay hikes of 20-25%.”
Indian lawyers are not typically hired as full-time employees. Instead they are engaged as independent consultants on fixed retainers.
“Associates and senior associates are engaged on a retainer basis,” says Hemant Sahai, the managing partner of HSA Advocates (formerly Hemant Sahai Associates) in Delhi.
In theory, a lawyer on retainer can work outside the firm that pays that retainer. “The most advantageous part of [the fixed retainer] format is that the individual lawyer is free to take up independent litigation and corporate matters and can practice in a court of law,” says Agarwal.
Indeed, when a lawyer is employed by a company, including a law firm, he or she is required to submit his or her certificate of practice to the Bar Council of India, surrendering the right to practice in court of law.
There are also taxation advantages to the retainer model: lawyers hired on retainer basis are levied a 10% tax deduction at source, compared with a much higher rate for full-time employees.
However, as India becomes more integrated into the global economy and attracts more foreign investment, workloads at corporate firms have increased and fewer lawyers can manage to work full time for a law firm while simultaneously servicing their own private clients.
Moreover, competition among law firms to attract and retain talent has increased. As a result, some firms are now supplementing retainers with performance-based incentives.
“Incentive-based remuneration is certainly a key element for most firms,” says Agarwal at Clasis Law.
But observations by Anand at Legal League Consulting lead her to believe that incentive-based pay is still relatively uncommon. “Out of the 100-plus firms I’ve studied, no more than 20-25% offer incentives,” she says, adding that incentives come in various forms. Many are simply ad hoc bonuses, but they can also be based on a percentage of the fixed retainer, a percentage of recoveries or a mixture of the two.
Some firms pay incentives after an evaluation of the lawyer’s competencies and billings, while others pay on a combination of capped variables or client credits. Whatever the formula, Anand notes that such incentives typically total less than 10-30% of the fixed retainer.
In some cases retainers are actually lowered if performance-based incentives are on offer. “We work on the principle that only high performance will be rewarded,” says Gunjan Paharia, the managing partner of ZeusIP, an intellectual property boutique in Delhi. “We therefore have a lower fixed compensation and a higher variable compensation.”
Paharia says fixed compensation is benchmarked at 70% of the average salaries paid by three top IP firms in Delhi. “In my experience, the variable compensation for a high performer [at ZeusIP] takes the annual package of the person to about 120-150% of the salaries offered by the best IP firm in Delhi.”
At the heart of India’s legal profession are sole proprietorships and family firms. “In India, 85-90% of firms are sole proprietorships, or there are partners but management and governance are handled by one or two people,” notes Anand. This, she says, is a key factor in limiting the growth and reach of many Indian law firms. “If you want to go to the next level of growth, you have to bring in partners and have a real partnership model.”
Such a relinquishing of power is anathema to most Indian legal families, but Anand says that change is inevitable. “You have to give to get more,” she says. “This idea is still nascent in India.”
Even in those firms that have added outside partners, it is often the case that the new arrivals have had little traction in changing the overall direction of the firm they joined.
“Most firms – regardless of how widely-held they may appear to be – have at their core a decision-making centre composed of a family or one or two partners,” says Nitin Sen, the managing partner of Lexcellence in Delhi. “The other partners are not necessarily short-changed when it comes to remuneration, but they do not enjoy a veto power as the core centre does.”
Anand advises law firms to ask themselves why they want outside partners. “First and foremost, are you making someone partner because you want to retain them or because you want to make them a partner?
“It’s very important that if you’re making a lawyer a partner you have to make him feel he’s part of the management and governance of the office,” she says. “He needs independence when it comes to managing his clients and getting new clients.”
Consultants say they can’t stress enough how critical equity partnerships are to improving Indian law firms. “If Indian firms really want to be capable enough to compete with international law firms, this is the first and most important step towards that,” says Sharma. “The mindsets of senior-most management needs to changed to adopt this partnership mode [so] they can sit back and relax a bit and still see their firms grow remarkably. Authority and responsibility should be balanced to reap the dividends.”
Many modern Indian firms utilize a combination of equity partnerships and salaried partnerships. For more experienced lawyers, salaries are adjusted to reflect profit-sharing. “Once the credential of the lawyers who joined at the entry level are established to the satisfaction of the firm, the salary packages are adjusted so as to be compatible with a certain percentage of the profits,” says Amarjit Singh, the managing partner of Delhi IP firm Amarjit & Associates.
Khaitan & Co says it has a “very well defined and structured appraisal process”. According to Jhunjhunwala, each lawyer is evaluated on a complex scorecard involving revenue targets, client expectations, process development, people skills and behavioural competencies. “Every year the firm appraises individuals twice and the meritorious and most deserving candidates are put through a partner-grooming process.”
Anand forecasts that the future will see more lockstep partnerships in India, but not in the traditional pure lockstep form. “Firms are asking us questions, especially about modified lockstep partnerships,” she says. “They are interested in knowing what’s available globally.” Traditional lockstep doesn’t really exist anymore, even in the West. “It will be a combination of lockstep and performance and fixed retainer.”
New partnership alternatives are being embraced by law firms all over India, especially by the younger firms. “We are just experimenting with some of these models,” says Arjun Bala, the managing partner of Meta Yage IP Strategy Consulting, an IP boutique in Bangalore.
Meanwhile, the traditional “eat-what-you-kill” format is still popular. “Our firm follows the eat-what-you-kill model,” says Agrawal at Intelligere. “Each partner receives a share of the partnership profits up to a certain amount, and any additional profits are distributed to the partner who was responsible for the origination of the work which generated the profits.”
Consultants back this model in the Indian context. “Personally speaking, eat-what-you-kill would be the best form of partnership model – along with a fixed component – for Indian law firms,” says Sharma. “The partners’ cost would not be a liability on the firm,” he adds. “They would have a fixed percentage of sharing out of the revenues that they generate.”
Other law firms mandate a similar equity or profit share among partners, regardless of what they have “killed”. “We are an all-equity partnership, which we believe sets us apart from our competition,” says Jhunjhunwala at Khaitan & Co. “Ours is an open firm with transparency on the partnership. We don’t believe in having salaried partners.”
Still more firms use a hybrid of the two, with a fixed equity share but a variable profit share. But in virtually all cases, the founder or founding family still owns a majority stake. Non-family members typically have to put in many years of service before they are even considered for partnership positions. In many firms, they will never be considered at all.
“Partners are elevated to equity partnership after they have spent considerable time, generally years, with the firm as salaried partners and have proven themselves,” says Sharma at Personnel Junction.
Of the family firms that have tried to open their doors to non-family partners, not all have succeeded. “There are a number of instances where the partnerships in the law firms did not last long with outside partners as the family considerations supersede the competency and earning capacity of the outside partners,” says Singh at Amarjit & Associates.
The cost of equity
When Indian lawyers are offered partnership positions, it is not uncommon for them to be required to buy into the partnership. “Some old-style firms expect partners to buy equity, while modern firms of today are more democratic and professional having merit based pre-requisites and clearly defined parameters to enter partnership,” says Garg at Edge International.
Some lawyers enthusiastically defend their buy-in policies. “Our partnership policy is based on the premise that every current partner will create the next level of partnerships who will buy the current partner’s equity, thereby ensuring long-term growth of the firm and ensuring fresh, young dynamic blood into the firm,” says Paharia at ZeusIP.
Mumbai-based LawQuest is an example of a firm that plans to introduce this model. “We are working towards a buy-in with no refund on leaving but benefit from any takeover accruals,” says Poorvi Chothani, the firm’s managing partner. “The benefit from investing the buy-in amount will be from the annual net accruals of the firm. The buy-in enables the joining partner to benefit from the brand and goodwill that already exists.”
Lawyers would have to buy into the partnership unless they bring in a significant book of business with a proven track record of earnings, Chothani adds. “This, in effect, would be a lateral acquisition or a merger of two small firms.”
But not all lawyers support the buy-in model. “Our firm does not follow such a practice,” says Agarwal, who says the buy-in format is used generally by smaller firms looking to expand using capital investment in the firm by an incoming partner.
Regardless of how new partners come to acquire their equity, it is vital that they are indemnified by the partnership against any debts that were incurred prior to their joining. Sharma urges all potential partners to carefully analyse the liabilities of the law firm before accepting any offer. “The new partner may be liable to pay off debts to the extent of his or her percentage of equity,” he warns.
At the other end of their careers, equity partners are generally permitted to retain their equity only if they decide to retire. “If a partner simply moves over to another firm, he sells his share,” says Sharma.
There is a realization among many observers that the partnership model is a necessary step that will allow Indian law firms to undertake larger, more complex transactions and better equip themselves to compete with international firms. “Firms are realizing the importance of partnerships,” says Anand. “It’s more important than branding or marketing.”
Indeed, in India, the brand often applies not to a firm but to an individual lawyer, even in the larger firms. “Partners share risk and profit,” says Jhunjhunwala. “They are the individual brands.”
But not all lawyers see the evolution of partnerships as a good thing. Singh at Amarjit & Associates says younger lawyers are focusing on the partnership prize before developing their own skills: “Before looking for offers of partnership positions with an Indian law firm, the younger generation of lawyers need to concentrate more on learning the practical aspects of legal practice.”