Law Practice Management Asked and Answered Blog
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Apr 25, 2018
Law Firm Management Committee vs Full Partnership
Question:
I am a partner in a fourteen attorney firm in San Antonio, Texas. We have eight partners and six associates working in the firm. The firm was founded twenty years ago, so we are a first-generation firm. Two of the partners were the founders of the firm and the other six were made partners in later years. Currently our method of governing the firm is handled by the full partnership. While each partner has one vote, we try to manage by consensus. We do not have a managing partner or any committees. We have an office manager that primarily handles the accounting and the staff oversight. The partners meet weekly to discuss issues and make decisions. We are beginning to have issues with our management structure. Partners are not showing up for the weekly meetings and complaining about the amount of time it is taking away from servicing their clients. Should we consider a different approach? We would appreciate your thoughts.
Response:
You are at a difficult size, still a small partnership but big enough that management by all may no longer be working for you. I believe that you should consider either a managing partner or a management committee of three partners elected by the partnership. For this to work all of the partners must agree to surrender some degree of independence to a managing partner or a management committee. I would start with putting together a list, or job description, for the managing partner or management committee. Partnership agreements often outline management decisions (powers) reserved for the partnership with all decisions handled by the managing partner or management committee. If your partners are unwilling to surrender some degree of independence then changing to a managing partner or management committee may prove to be wasted effort.
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John W. Olmstead, MBA, Ph.D, CMC
Apr 17, 2018
Subjective Law Firm Partner Compensation Systems
Question:
I am a partner in a twelve attorney commercial litigation law firm in Palm Beach, Florida. There are five partners in the firm. We are contemplating merging with another firm in the area of similar size. We have done our due diligence and have come across a possible non-starter – the compensation system. Our compensation system is totally objective – formula-based very close to an eat-what-you-kill system. The other firm has operated under a subjective system and they are pushing for the firm to operate under this type of system. We would appreciate your thoughts and enlightenment concerning subjective-based systems.
Response:
Subjective-based systems are the most commonly used approach to setting partner compensation, especially in larger firms. More and more firms your size and larger are moving to subjective systems as a result of the failure of other systems to account for the full range of contributions that partners make to the law firm. Subjective systems can take on a variety of forms but the central theme of such systems is that they rely on a subjective assessment of partner performance, without reference to specific weighting of factors or a set formula. This is not to say that subjective systems lack structure or predictability, or that they don’t consider objective financial data. Successful subjective compensation systems include these elements and more.
Subjective compensation systems vary widely. Here are some of the most common elements found in subjective systems:
- Prospective vs Retrospective System. Systems can take the approach that sets compensation at the beginning of the year by assigning relative shares of the profits and applying allocations as the profits are earned or await the end of year results before making major allocations of profits. Prospective approaches are more common than retrospective approaches. However, most prospective approaches reserve some funds for year-end allocation.
- Who Makes Compensation Decisions. Since the system is not a simple plug and play using a formula, either a person or a group must be empowered with deciding how profits will be allocated among the partners – how they will be compensated. In most firms these decisions fall upon the executive or compensation committee. Often the success or failure of the compensation system hinges on getting the right people that are trusted by all of the partners on such committees.
- Factors – What Does the Firm Reward. Most subjective systems have defined factors that the system is designed to reward. Some compensation committees have these outlined very specifically in writing and others simply communicate the factors or consideration criteria verbally prior to annual performance reviews or through general discussions of goals.
- Data Review. The better subjective systems review financial performance data for each partner and subjective data for each partner often in the form of performance evaluation or peer review.
- Client Origination. Some firms consider client origination as a direct factor, others simply track client origination, and yet others do not track it all all.
- Point Structure. May firms use a point structure in which partners are moved up or down depending up their performance.
- Bonus Pool. Bonus pools are often used in such systems to reward exceptional performance.
In additional to subjective compensation systems some firms used hybrid systems that employs objective (formula) and subjective components.
Subjective systems are not for all firms. They will fail with out strong, trusted, leadership. In very small firms it is difficult to structure a compensation decision making body.
It sounds like your firm and the firm you are thinking of merging with may come from two very different cultures. Subjective systems work well for firms that are “firm first” firms but not for lone ranger firms that often operate under eat-what-you-kill systems. If you firm is not a long ranger firm and your are in fact a “firm first” firm or aspire to be such you may be able to adapt to a subjective system. However, you may need a post-merger phase-in period. Another comprise approach might be a hybrid system.
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John W. Olmstead, MBA, Ph.D, CMC
Apr 11, 2018
Law Firm Practice Groups
Question:
I am a partner and a member of our three-member executive committee. Our firm is a twenty-five attorney litigation defense firm in Kansas City, Missouri. We handle matters such as personal injury, medical malpractice, professional malpractice, products liability, and health care law. Each attorney handles and manages his or her own cases and operates in isolation of the other partners in the firm. Other than attending a quarterly partnership meeting there is little interaction among the partners. We have been discussing whether we should form practice groups. We would appreciate your thoughts.
Response:
Practice groups can be excellent vehicles for enhancing communications, attorney and staff skill development and training, practice management, and marketing. Practice groups should share the mission and vision of the firm as well as goals of enhancing services to clients by developing the skills of the members of the group in a particular legal specialty or industry niche and developing business for that particular group. Practice groups should not operate as isolated islands but should be structured and integrated with the firm. Specifically, functional practice groups should:
- Maximize cross-selling opportunities between practice groups.
- Develop a cohesive “firm-first” attitude that we are all in this together.
Practice groups can be structured around legal specialties such as personal injury, product liability, and professional malpractice. Other practice groups can be structured around industry niches such as energy, health care, etc. In cases where a firm has a very large client a practice group can established for that specific client.
While practice groups can have their advantages, I have found that in many firms they are dysfunctional. They do not meet on a consistent basis, have no goals, or direction, poor leadership, and seem to accomplish little. To be effective practice groups must:
- Be setup by the executive committee with specific goals and have a written charter developed by the executive committee.
- Effective leaders should be appointed by the executive committee to serve as chair of the practice group assigned. Specific roles should be identified as well as expectations.
- Practice group chair leadership effectiveness should be a factor in the compensation system.
- Practice groups should have written strategic plans that integrate with the firm’s strategic plan.
- Practice groups should meet monthly.
I believe a practice group would be a logical direction for your firm. You might want to start slow and try a “pilot” test group where there appears to be significant interest and see how it develops.
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John W. Olmstead, MBA, Ph.D, CMC
Apr 04, 2018
Associate Attorney Motivation
Question:
Our firm is a fourteen attorney firm in Chicago. There are nine partners and five associate attorneys in the firm. Our practice is limited to insurance defense. I am one of the founders and senior partners in the firm and have been practicing for 35 years. We are having problems getting our associates to produce at the levels that we need for the firm to be profitable. We have a 1800 annual billable hour requirement and several of our associates aren’t even close. We have a bonus system that pays associates a bonus based upon billable hours exceeding 1800 billable hours. What are we doing wrong?
Response:
It often takes more than setting up a bonus system and then leaving it on autopilot. I am finding that the intrinsic reward of doing a good job and meeting the expectations of the firm’s partners are as important as the bonus system. In client law firms that have had similar problems we have found that by supplementing the bonus system with monthly reviews and coaching sessions with associates not meeting their targets has made the difference. Here is an outline of the process:
- Review you monthly billing/hours reports for all associates each month.
- Identify those are below targets and expectations.
- Meet with those associates that are below targets and expectations.
- Discuss why there are having problems meeting expectations. Lack of work, not working enough hours, poor time management habits, or poor timekeeping habits.
- Identify solutions to the above problems.
- Monitor and follow-up.
- Continue to meet every month until such time as the associate is meeting targets and expectations.
The bonus rewards those that want to push beyond the 1800 billable hours but does nothing to solve the problem of those not meeting the 1800 billable hour expectation.
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John W. Olmstead, MBA, Ph.D, CMC
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