Stop Giving Random Raises: Building a Pay Scale for Small Law Firms
A law firm owner with sat across from his paralegal, Marcia. She'd been with him for four years. She was good at her job. And she'd just asked for a raise.
He didn't know what to do. He'd never had this conversation before. Not really. The first three years she got 'a little something' each year because it felt right. But this time she'd named a number. He looked at her, looked at his P&L, looked at his bank balance, and said something like, 'let me think about it and get back to you.'
This scenario happens to almost every law firm owner at some point. What do you do?
The right question
The right question is: what's the market-based range for the role she does? Not the person. Not the years she's been there. The role.
Greg Crabtree, in Simple Numbers Chapter 6, calls this the Salary Economy. His argument: there's a middle ground between paying too much and paying too little. You find it by anchoring to the market for the role, not the person sitting in it.
Crabtree also says this:
Never give an employee a cost-of-living adjustment.
I know. It sounds harsh on first read. It isn't and here’s why.
Crabtree's reasoning: the amount your employee chooses to spend in their life isn't your problem. Their housing costs, their kid's daycare, their gas bill — none of those are inputs to what you should pay them. The market rate for their role is the input. Everything else is noise.
Pay should only change for ONE of two reasons:
The salary economy shifted. The market rate for their role moved.
They moved up a level. New responsibilities, new skills, new role.
That's it. Those are the two triggers.
If neither of those things happened — they don't get a raise. They get the same pay. Because they're doing the same job at the same market rate.
Why this matters for your firm
Labor is the largest expense for most law firms, and labor productivity is your single most powerful determinant of profitability. Get it right and you have a wildly profitable firm. Get it wrong, and you’re facing bankruptcy.
Navigating compensation can feel like stumbling in the dark. Not having a system leads to chaos and distrust. Different decisions for different people on different days. One paralegal got a raise because she asked. Another didn't because the timing was bad. A third hasn't gotten one in three years because the owner forgot. Nobody knows why anyone makes what they make. The team feels it.
That's not a comp system. That's anxiety.
On top of that, compensation can be emotionally charged if you don’t have objective criteria to follow. You may feel insulted when someone asks for a raise. You may give out raises reluctantly and then end up harboring resentment towards that employee. Giving out raises without clear guidelines sends the wrong message. And denying raises without objective reasons can alienate your employees.
Here's what changes when you build a real pay scale.
Retention gets better.
Your team can see the path. They know what they need to do to get to the next level. They stop wondering if they're underpaid because the range is written down and defensible. The good people stay because they trust you. The wrong people leave because the path isn't appealing to them — and that's fine.
Hiring gets sharper.
You stop trying to recruit an $80k person on a $40k budget. Crabtree's warning in Chapter 6: 'Be careful about hiring people for $40k a year when they're used to making $80k — they're short term.' When you have a defined range for a role, you're not making someone else's career sacrifice for your firm's benefit. Hiring becomes a conversation about role fit, not about whether you can afford the person.
Profitability improves.
Your gross profit per labor dollar — Crabtree's second-most-important KPI — stops drifting. Because every hire and every raise is anchored to the market, not to your sympathy.
Fairness gets real.
Not equal — fair. Crabtree's blunt line from Chapter 1: 'Two people are rarely worth the same amount of money.' The pay scale makes that fact visible and defensible. Two paralegals doing the same work at the same level should get the same pay. A paralegal who's moved up to senior paralegal makes more. The math is honest. The team can see it.
Why this matters for you
Here's the part most owners miss.
When you don't have a pay scale, every comp decision costs you decision energy. The paralegal asks for a raise. You wrestle with it for a week. You worry about being fair. You worry about being a pushover. You worry about cash flow. You eventually say yes, half because you're tired of thinking about it. Then six weeks later your associate asks for a raise — and the cycle starts again.
When you DO have a pay scale, the conversation takes 90 seconds.
'Marcia, you're in the senior paralegal range, which is $X to $Y in our market. Right now you're at $Z. The way to move up is to take on [these specific responsibilities] and develop [these specific skills]. Let's build that into your next quarterly review and revisit at the end of the year.'
That's the whole conversation. No anxiety. No favorites. No emotional decisions made on tired evenings. Just the system doing its job.
What the pay scale looks like
Crabtree's Chapter 6 gives you the building blocks.
Roles and levels.
Define them. Most solo and small firms need 3-5 roles: associate (junior / senior / lead), paralegal (junior / senior), admin, and ops manager when you grow. Each role gets 2-3 levels. The level determines the pay range.
Top 3-5 skill sets per role.
Crabtree is firm on this: don't get too detailed with job descriptions. Identify the top 3-5 skill sets that drive productivity in each role. Those are what you hire on. Those are what you review on. Those are what you raise on.
Market-based ranges for every level.
Don't trust the published salary surveys — Crabtree says they're inflated. Talk to peers in your practice area. Get a real number. Establish a min, mid, and max for each level. Three pay points per level. That's it.
Quarterly reviews — not annual.
Crabtree says 'at least twice a year.' For solo and small firms with 2-5 people, I push to quarterly. It keeps you out of trouble. It builds the habit. And the team feels seen. Five questions per review: How good a teammate? How well do they connect with clients? How productive? Do they contribute at your profitability target? Have their responsibilities and skills grown?
The two triggers, written down.
Pay changes when (a) the market shifts or (b) they level up. Put it in writing. Tape it to the inside of your filing cabinet if you have to. The next time someone asks for a raise, you point at it.
What to do next
If you're running compensation like a casino, here's the move.
We’ve built an example pay scale structure for a small law firm. We already did the heavy lifting: 3-5 roles, 2-3 levels each, market-based ranges built for solo and small firm reality, and the top 3-5 skill sets per role Crabtree teaches in Chapter 6. Adapt it to your firm in an afternoon. You can download it inside the Lawyer Millionaire Community. Click the button below to be taken directly to the resource.
Not a community member yet? You can sign up for free!
Once you've adapted it for your firm: schedule a 30-minute conversation with each member of your team in the next 60 days. Walk them through the structure. Show them where they sit and what it takes to move up. The first conversation will feel awkward. By the third one, it'll feel like the most adult compensation conversation you've ever had with the team.
The next time someone asks for a raise, instead of squirming, you’ll be able to say:
“Tell me how much money you want to make. Now, let’s see what needs to happen to get you there.”
You’ll be able to have a clear and calm conversation with your employee about the next steps they need to take to increase their compensation, without awkwardness or bad feelings. When everyone in your firm understands that they are paid a fair market wage for their role, these conversations get easier.
— Darren
P.S. If you want help building the ranges for YOUR practice area — book a 30-minute call at https://www.lawyermillionaire.com/strategy.