I am the owner of a seven lawyer insurance defense firm in downtown Chicago. Two of the lawyers are non-equity partners and four are associates. Currently I pay the associates a set salary and a performance bonus based upon annual billable hours over 1800. Until last year non-equity partners were paid in the same fashion, however non-equity partners received a few additional perks such as a firm credit card and a country club membership. Last year I changed the non-equity partner compensation system to focus on collected receipts rather than billable hours. Non-equity partners receive a salary and a performance bonus based upon working attorney collected received above a established threshold and a delegation bonus.
Currently all of the non-equity partners are paid salaries above $100,000 and two of the associates are above $100,000.
My results with the two bonus systems are dismal at best. My objective was to motivate my attorneys to bill more hours. However, they don’t seem interested. Very few have received bonuses. Last year I had several lawyers that did not even bill 1500 hours. What have a done wrong?
There is noting wrong with your approach to compensation. You may have the wrong people on the bus. They simply aren’t hungry and this is not something you can teach. You are paying them salaries high enough that they can pay their bills – they are content and don’t want to put in the additional work to earn the extra income. Work-life balance is as important to more and more young attorneys as is money. If your attorneys are simply meeting the thresholds (billable hour or revenue expectations) and not exceeding them that is one thing. However, if your attorneys are not meeting the minimal expectations (hours or revenue thresholds/expectations – this is another issue as they are not producing at a level to justify the salaries they are being paid. Salary adjustments downward may be in order or simply terminating them. I don’t know many insurance defense firms that will tolerate less than 1800 billable hours.
While you must get compensation right in order to acquire and retain top lawyer talent as well as reward performance and reinforce desired behaviors, the starting point is hiring and retaining the right people to begin with.
Research from a classic business study that was highlighted in the popular business book “Good to Great” (Collins, 2001) authored by Jim Collins found that the method of compensation was largely irrelevant as a causal variable for high and sustained levels of performance. Other research also bears out that performance and motivational alignment are impacted by intrinsic and other factors other than just extrinsic factors such as compensation or methods of compensation. Over the years I have seen too many partners leave lucrative situations in law firms to join other firms for less compensation or to start their own firms to suggest that it is not only about the money or compensation package.
Jim Collins sums it up best in the following quotes from Good to Great (p 10-13)
“First who – then what”
“They get the right people on the bus, the wrong people off the bus, and the right people in the right seats.”
“People are not your most important asset. The right people are.”
Your compensation system should not be designed to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there. Your compensation system should support that effort.
James Cotterman, Altman & Weil, Inc., (Cotterman, 2004) contents that there are two groups of employees for whom compensation is not an effective management tool. The intrinsically motivated (6% to 16% of partners perhaps) do not need compensation as an incentive. The struggling performers (another 6% to 16%) will not react favorably to a compensation system that rewards positive behavior.
John W. Olmstead, MBA, Ph.D, CMC
I am the owner of a four-attorney firm in Indianapolis, Indiana. The firm has three associate attorneys plus three paralegals and three other staff members. One of my attorneys recently advised me that he wanted to do more work remotely. The next day I emailed him my thoughts and advised him that I would not let him work remotely. He then emailed me that he was giving me his two weeks notice. What should I have done differently?
You should have met with him personally and discussed the matter face to face. Email has its uses but I find it is often overused and used in situations where it should not be.
Note the following scale of communication media and richness.
1. Face to face
3. Email and texts
Face to face is the richest form of communications and should be used for sensitive communications such as performance reviews and other such discussions concerning performance, praise, training and mentoring, etc. It should have been used in the situation you discussed in your question.
Telephone is the second richest form of communications and should be used for less sensitive communications or for face to face situations discussed above when a face to face meeting is physically not possible.
Email, text, and other written communications should be used for routine communications such as assignment of projects and tasks, work instructions, etc.
Sensitive and difficult communications should be communicated through a rich medium such as face-to-face meetings and routine communications through a lean medium such as a memo.
Media richness is determined by the speed the media provides, the variety of communications channels on which it works, the extent of personal interactions allowed, and the richness of language it accommodates. As tasks become more ambiguous, you should increase the richness of the
media that you use.
John W. Olmstead, MBA, Ph.D, CMC
Our firm is a eighteen attorney firm in Portland, Oregon and I am the recently hired firm administrator. This is my first law firm. My previous employment was with a small manufacturing and distribution company. I have read some articles that discussed the importance of managing inventory in a law practice. Does a law firm even have inventory? I would appreciate your comments.
Inventory (or pipeline) management is a term used in the management consulting profession to refer to the process by which you continually evaluate your active opportunities (prospective clients to booked clients) for their balance of QUALITY and QUANTITY. The goal is to continually stay on top of the overall health which is a full pipeline. Pipeline management allows client relationship managers to more accurately forecast fee revenues, better staff and manage client engagements, and close more client business.
I often also refer to Inventory or Pipeline Management in law firms in the context of using financial dashboards by which the individual charged with financial management responsibilities is continuously aware of significant changes in the firm’s Inventory or Pipeline (from prospects to cash):
By comparing these dashboard statistics to a prior month, quarter, or year – you are able to avoid financial surprises down the road.
Law firms do have inventory and that is their unbilled work in process (matters in process) or in the case of a contingency fee firm I usually refer to work in process as cases in process.
How well this inventory is managed – managing what is in front of you rather than what is behind you is a critical component of financial management and has a major impact upon the profitability of the firm. However, this responsibility falls primarily to the attorneys responsible for the matters. However, in your capacity as administrator you can provide the reports and oversight to help keep them on course.
John W. Olmstead, MBA, Ph.D, CMC