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Jan 05, 2022


Law Firm Remote Work Post COVID 19 – Is Remote Work Here to Stay

Question:  

Our firm is an estate planning practice in the suburbs of Washington D.C. We have five attorneys and six support staff working at the firm. During the COVID lockdowns in 2020, and to some extent in 2021, our attorneys and staff worked remotely. At first we all felt that productivity actually increased. However, after a month or two working remotely we began to change our minds. Communications with each other, review of work, etc. took much longer and once the lockdowns were lifted all of us were anxious to return to the office. We have been working almost exclusively at the office since the lockdowns were lifted. During the last several months we had to hire an additional attorney and a couple of paralegals. During the hiring process we found that prospective employees are demanding some form of remote work option. In order to hire these employees we had to provide them with a partial remote work option as well as signing bonuses. Is remote work here to stay?

Response:

I believe it is, especially in large metropolitan areas with heavy traffic congestion and long commute time. Law firms of all sizes are finding that hiring and retaining talent – attorneys and staff – is becoming increasingly difficult and is their number one strategic challenge and even more concerning than development of business. Large and small law firms are implementing permanent remote work policies in various forms.

Post-COVID-19, one of the innovations of the pandemic, the adoption of remote work, is set to attract the best talent to law firms. This was seen in a recent survey from legal recruiter Major, Lindsey & Africa, which found that most lawyers from the incoming generation are looking for an opportunity to work remotely, even if it’s just some of the time.

According to a recent survey conducted by FlexJobs survey, 97 percent of workers want some form of remote work post-pandemic, with 58 percent preferring to be full-time remote and 39 percent opting for a hybrid work environment. To provide insight into the broad interest in remote career opportunities amid an uncertain and fast-changing work landscape, FlexJobs has released a report: FlexJobs has released a report: Remote Work Statistics: Navigating the New Normal, which offers a by-the-numbers look at the current impact of remote work on the workplace.

“The data outlined in this report suggests that even during the most challenging of circumstances, remote work provides important benefits across the board,” said Sara Sutton, Founder and CEO of FlexJobs. “From improved mental health and better work-life balance to increased job satisfaction, the majority of employees have responded very favorably to remote work, with many now strongly inclined to pursue a permanent remote career. As we consider the future of work, it’s clear remote work policies will be critical in shaping the modern workplace,” Sutton concluded.

Visit https://www.flexjobs.com/blog/post/remote-work-statistics/ for more information.

I believe you should at least consider a partial remote work option going forward.

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John W. Olmstead, MBA, Ph.D, CMC

Nov 10, 2021


Law Firm Year End Retreat – Ensuring that the Effort is Worth the Time Investment

Question:  

We are a thirteen attorney law firm in San Diego with four equity partners, three income partners, and six associates. We are a business litigation firm and we are in first generation. The four equity partners founded the firm and manage the firm. A few years ago we held our first retreat. Everyone enjoyed the experience but when it was all said and done nothing changed – no decisions made during the retreat were implemented – and many feel that the retreat was a waste of time. There has been some recent discussions of holding another retreat and several partners feel that we should not due to our failure to make any changes whatsoever. Do you have any suggestions?

Response: 

This is a common problem that many law firms experience – especially the retreat was their first retreat. You need to be sure that you come away from the retreat with a specific plan for follow-up action on every problem discussed. If you decide to start a telling search to fill a lawyer, paralegal, or staff position, or if you have assigned several attorneys or staff members to work further on a specific problem and to report the results, it is important that the individual assignments and target dates for reporting and completion be made explicit. Determination of this kind should be recorded and made part of the minutes of the retreat. Further, a system of follow-through meetings to assess progress is advised, in order to maintain momentum achieved at the retreat. Many firms benefit considerably by incorporating specific retreat decisions into a 12 month growth plan and schedule of activities to meet firm objectives. Planning of this kind typically results in significant firm progress, even though initial resistance to these efforts by some firm members may be substantial.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

Sep 29, 2021


Finding and Hiring Law Firm Associate Attorneys During These COVID Pandemic Times

Question: 

I am the sole owner of an estate planning firm in Chicago Suburbs. I have three other associates in the firm. Our volume of business has expanded rapidly during the last six months and we desperately need one to two more associates on board. I have been looking for three months and have been unsuccessful. I have had some leads but when I made offers they were not accepted. Your thoughts would be appreciated.

Response: 

These are tough times for attracting and retaining talent in all businesses. Law firms are having difficulty hiring lawyers as well as staff. Many of my law firm clients are telling me that finding clients is no longer their primary concern – their top strategic concern is now finding, hiring, and retaining lawyer and staff talent.

During these times it is imperative that law firms get creative and think outside of the box. Flexibility is key. Here are a few things that some of my clients have done that has resulted in successful attorney hires:

  1. Paid for sponsoring with Indeed ad placements.
  2. Took out a paid ad with their state bar association.
  3. Used a recruiter.
  4. Increased starting salary/bonuses.
  5. Added medical insurance as a benefit.
  6. Paid a signing bonus.
  7. Provided reimbursement for moving/relocation costs.
  8. Implemented a permanent remote work policy allowing all personnel to work at home a certain number of days per week.
  9. Increased number of vacation/personal time off days.
  10. Added 401k plan.

Successful law firms must attract both clients and talent in order to be successful. All businesses are suffering and having a hard time attracting and retaining attorneys and staff. This also means that other law firms are desperate and may try to steal you lawyers and staff with better pay or other incentives. You need to review all of your benefits and policies as well as compensation to make sure that you are more that just competitive – you need to be on the cutting edge and ahead of the pack. Employees now expect more flexibility, remote work, etc. than ever before.

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John W. Olmstead, MBA, Ph.D, CMC

Aug 25, 2021


Law Firm Associate Compensation – Bonuses Based on Hours or Dollars?

Question:

Our firm is an eight-lawyer insurance defense firm in Chicago. We represent insurance companies across the ChicagoLand  area representing their insured’s in personal injury cases. Our clients are billed by the hour and we have a wide range of hourly rates based upon the client, type of matter, who is working on the case, etc. We have three equity partners and five associates working in the firm. Currently all of the associates are paid a straight salary and a discretionary bonus. We are having issues with our associates not putting in the billable hours that we need them to be putting in. We would like to put in a bonus system to motivate them to increase their billable hours. Should we focus on hours or collected dollars? Your suggestions would be most welcomed.

Response: 

Both approaches – hours and collected fees are used in many law firms and I prefer collected fees when they are workable for the firm. Usually the focus is on working attorney fee collections but can also include a client origination and sometimes a responsible attorney (delegation component). However, in insurance defense firms this is often not workable due to the wide range of hourly rates and the potential unfairness for associates that are assigned to lower hourly rate client matters. Most insurance defense firms that I have worked with either pay associates a salary plus discretionary bonus or salary plus a bonus based upon adjusted billable hours that are actually billed to clients after a certain billable hour threshold is reached. For example:

Many firms breakdown the expectation in to a quarterly or monthly expectation and pay bonuses on a monthly or quarterly basis.

Make sure that your associates don’t game and milk hours. Advise them that the bonuses will be based on hours after write-downs or adjustments. In other words hours that are approved by the billing partner and are billed to clients.

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John W. Olmstead, MBA, Ph.D, CMC

Jul 14, 2021


Law Firm Succession Planning – Will Your Non-Equity Partners or Associates Simply Wait Your Out?

Question: 

I am one of three founding partners in a fourteen lawyer firm in Cleveland, Ohio. We are an insurance defense firm with three founding partners, five  non-equity partners, and six associates. We have three primary insurance companies that refer a majority of cases to the firm. All three of us founding partners are in our early to mid sixties and contemplating our retirement and departure from the firm in the next five to eight years. Our lease runs out in eight years and none of us want to sign another lease. Three of our non-equity partners are in their mid to late fifties and two are in their forties. All of our associates have less than five years experience. When and how should we begin planning for our retirements and exits from the firm?

Response: 

I suggest that you start now, especially if you are planning on an internal succession strategy. I believe that an internal succession should be your first step if you have the right people in place. When a firm has institutional clients such as you do with many different relationships within each client organization it can take time to transition relationships to the next generation of attorneys in the firm to ensure that clients stay with the firm when you retire. Transition to the next generation of attorneys usually involves legal skill development, management skill development, and client transition. We often recommend five years.

If you are looking for a buy-in for new equity partners you need sufficient time so new equity partners can pay for their initial ownership interests over time and acquire additional interests as they can afford to acquire more. Waiting too long can also create a situation where non-equity partners in the firm feel they can simply wait your out and inherit the clients without paying anything, or very little, for their ownership interests or buy-in/buyouts. Consider making a few folks minority equity partners as soon as you can.

This assume that any of your non-equity partners even want to be equity partners in the firm which is often the case these days. Three of your non-equity partners may also be close to retirement themselves and have no interest in stepping up to equity. If this is the case you will have to focus on the other two non-equity partners. I would begin a dialog with all of your non-equity partners to determine their interest level. At some point you will not really know until you present them will a proposal and appropriate financial information – initial buy-in if there is to be one and founding buy-outs if there is to be such.

If it looks like the interest or commitment level is not there in your non-equity partners you may have to consider an external option such as a merger. The timeline often can be much shorter in such situations.

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John W. Olmstead, MBA, Ph.D, CMC

 

Jun 16, 2021


Implementing a Non-Equity or Income Partner Tier in a Small Law Firm

Question:

I am the sole owner of a five lawyer firm in Indianapolis, Indiana. The other lawyers are associates. Our firm focuses entirely on estate planning and probate and trust administration as well as elder law. I am 60 and do not plan on retiring for another ten years. Two of my associates have been with me for 8-10 years and are vital to my practice as well as my eventual succession and exit strategy. I do not want to lose them so I am considering making them non-equity partners and giving them the title of partner. I am not ready to have any equity partners at this time. I have a production bonus system in place for the associates so I don’t plan on changing their compensation or the system under which they are compensated. How can I make their promotion to partner meaningful?

Response: 

Here are some things you might consider:

  1. Really build up their promotion to partner.
    1. Press releases announcing their promotion to partner to the local media.
    2. Mail out announcements announcing their promotion to partner to clients, past clients, other lawyers and law firms, judges, referral sources, and family and friends of the new partners.
    3. List them as partners on the firm’s website, letterhead, and other promotional materials. (Some firms have even listed them in the firm name – I don’t agree with this)
  2. Include them in firm management and at least begin sharing some, even if limited, financial information with them.
  3. Consider providing them with additional perks.
    1. If your present bonus system is based on working attorney collections, provide a delegation component for fee collections/receipts from other attorneys or paralegals on matters that the partner is responsible for and is managing.
    2. Additional life insurance.
    3. Country or other club membership.
    4. Firm paid automobile.
    5. Gas card.
    6. Firm credit card.

The title of partner in itself is more important than you might think but it requires that a big a buildup. If you only do one thing – do the buildup announcement and secondly include them more in firm management.

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John W. Olmstead, MBA, Ph.D, CMC

 

May 26, 2021


How/When to Admit a New Law Firm Partner

Question: 

Our firm is a six lawyer family law firm located in the Chicago suburbs. There are two equity partners and four associates in the firm. Approximately five years ago the founder of the firm decided to retire and he sold the practice to myself and another associate in the firm. We just finished making our last payment the end of last year. We have an associate that we do not want to lose and he has inquired about his future with the firm and partnership. He has been with the firm for two years. My partner and I are considering offering him a partnership interest but do not know where to start. Any suggestions that you have would be appreciated.

Response: 

The two of you should start by asking yourselves the following questions:

The majority of firms that I work with regardless of size have a non-equity/income partner tier that an associate advances to prior to being considered for equity partnership. This gives associates the feeling of career progression, the title of partner which helps with client and peer recognition, additional responsibility in the firm, and additional compensation. Your associate may not even be expecting or be ready to become an equity partner – they simply want to know what the next step is in their career advancement and whether equity partnership is even possible in your firm down the road. Last week I interviews ten associates in a firm and six out of ten advised me that they had no interest at all in equity partnership. So, don’t assume that your associate is even interest in equity partnership.

I suggest that you give these issues serious thought before jumping off the cliff and prematurely admitting another partner. Adding another equity partner is a serious step and should be give appropriate due diligence.

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John W. Olmstead, MBA, Ph.D, CMC

May 05, 2021


Law Firm Succession Planning – How Important is a Formal Appraisal Valuation of the Firm?

Question: 

Our firm is an eight lawyer litigation firm in Portland, Oregon. We have three founding equity partners in their early sixties and late fifties, three non-equity partners, and two associates. Recently the equity partners began succession planning discussions among ourselves. Our preference would be an internal succession and transition to the younger non-equity partners in the firm. In our discussions we were discussing buy-in, buyouts, and valuation and one of my partners suggested obtaining a formal valuation. What are your thoughts regarding hiring a business appraisal firm to provide us with a formal appraisal/valuation of our firm?

Response: 

While I don’t wish to downplay a formal valuation, they can be expensive and I find often not really used in the final outcome, especially when it involves selling partnership interests to others within the firm.

Most law and other professional practices sell (to outside parties) for a multiple of annual gross fee income. Often this is discounted (sweat equity discount) when assets or shares are sold to other attorneys within the firm. Generally, this rule-of-thumb method of valuing a law practice is used to value the practice. However, the eventual value of a law practice comes down to what an interested party is willing to pay. In the final analysis the value of the practice is what an outside buyer or an attorney working for the firm will pay for (or invest) the practice. The valuation process is simply a tool to use to help you begin discussions and get to this point.

Many law firms with multiple partners view the law firm simply as a compensation vehicle designed to put as much income as possible in the pockets of the partners. They do not see the firm as an investment vehicle nor do the partners expect unfunded buyouts when they retire or otherwise leave the firm. These firms try to fund retirements with 401k and other retirement vehicles so there is no unfunded buyout upon retirement. The goal of these firms is to be in a position to acquire and retain top lawyer talent. Often these firms simply require an initial capital contribution and return cash-based capital accounts and earnings to date upon withdrawal or retirement. Sometimes a founder benefit is provided for the original founder(s) of the firm as a reward for their sweat equity establishing the make and making the initial investments. Such founder benefits are often a percentage based on an average of a founder’s compensation over the past three years.

Value in a law practice is largely personal to the lawyer and that individual’s ability to attract and retain clients. The lawyer has knowledge, experience, skill, judgment, and reputation—all elements of professional goodwill – not institutional or firm goodwill. As long as clients primarily hire lawyers, as opposed to firms, this will remain a guiding principle in valuing law practices. This is not to say that some firms have not created a “brand identity” that is separate and distinct to the institution. And in larger practices, the servicing team (including other partners and other practice specialties) influence the client’s selection decisions. Those firms are rare.

Often when selling partnership interests to others in the firm affordability and terms plays a larger role than valuation.

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John W. Olmstead, MBA, Ph.D, CMC

Apr 07, 2021


Law Firm Internal Succession – Non-Equity Partners and Business Development Ability

Question: 

Our firm is a twelve-attorney insurance defense firm based in Indianapolis, Indiana. The firm was founded thirty years ago by myself and two other partners. We represent approximately twenty-five insurance companies. Our lawyer headcount consists of three equity partners, four non-equity partners, and five associate attorneys. My partners and I are in our early sixties and just beginning to think about retirement. Two equity partners will retire in the next five years and the third is not sure of his timeline. We would really like to see an internal succession as opposed to a merger with another firm. We have yet to have any discussions with our non-equity partners and their interest in equity ownership. Frankly, we have never promoted any non-equity partners to equity partnership because none of them bring in any business and we have always thought this should be a prerequisite to equity partnership. Your advise and thoughts are most welcomed.

Response: 

I believe that for an internal succession strategy to be successful you have to start the transition early and the best way to accomplish this is to begin admitting others to equity partnership sooner than later, especially if you are expecting a founder benefit or buyout. While I believe that business development should be a major consideration when admitting equity partners this may not apply in your situation. If your non-equity partners are good minders, have solid relationships with your insurance company clients, and can hold the clients after the three of you retire this may be more than adequate for a successful succession strategy. I have worked with numerous insurance defense firms that are in their second generation totally serving clients that were originated by the original founders. Keep in mind that you are looking for an exit strategy.

By starting early and admitting them sooner than later you can implement a client and management transition strategy and determine if they are willing to buy-in and purchase an initial minority interest as well commit to purchasing your remaining ownership interests or paying your founder benefits.

The three of you should be giving some thought as to your financial expectations keeping in mind that valuation of the firm must be balanced with affordability and future equity partners ability to financially handle the buy-ins and buyouts.

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John W. Olmstead, MBA, Ph.D, CMC

 

Mar 10, 2021


Law Firm Non-Equity Partner Compensation

Question:

Our firm is a sixteen attorney full-service law firm in Denver, Colorado that works exclusively with small businesses. We have six equity partners five non-equity partners, and five associates. Three of our equity partners serve on the firm’s compensation committee of which I am one of the members. Our committee makes compensation recommendations to the partnership for equity partners, non-equity partners, and associates. Since forming the non-equity partner tier a few years ago we have not changed our method of compensating non-equity partners which has been salary and discretionary bonus. We are wondering what factors we should be considering and what some of the best practices are concerning non-equity partners. Your thoughts would sure be helpful.

Response: 

Non-equity partners’ salaries are generally based on a baseline of a predetermined billable hours multiplied by their general billing rates, plus an estimated overhead factor and incentives. The bonus threshold is generally based upon their billings and collections.

Below is a list of the factors that are considered in most firms when allocating salary increases and bonuses to the non-equity partners:

A goal should be for equity partners to earn 25 to 30 percent or more profit margin on work provided to the non-equity partners.

The firm should ensure that a profit-margin opportunity is not totally given away by virtue of the salary and bonus calculations that overemphasize billable hours and billings rather than collections.  Consideration must be given to firm overhead and profit margins.

If the work performed by the non-equity partner was originated by that attorney, it is reasonable that some portion of the fee generated be paid as a commission for originating that work. Originating the work and doing the work yourself is a common scenario. It is not unusual to see firms pay a 10 to 15 percent commission for that work.

If the work is originated by the non-equity partner but billed and handled by someone else, the commission should be lower (approximately half the normal commission or less).

All of these origination commissions should be built upon the expectation that the work is billed and collected at reasonable rates. There is little justification for paying for origination for work that is not profitable.

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John W. Olmstead, MBA, Ph.D, CMC

 

 

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