Law Practice Management Asked and Answered Blog

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Feb 14, 2018

Compensation Ideas for Law Firm Staff – Goal Bonuses

Question: 

I am the firm administrator with a ten attorney firm in Long Beach, California. I really enjoyed reading your blog – Law Firm Compensation – Bonuses for Staff, dated December 27, 2016.  

I really like your approach of tying bonuses to measurable outcomes. Have you used other approaches other than percentage of salary? Can you give additional examples of specific goals that would be appropriate for a bookkeeper, office manager, or firm administrator?

Response: 

Research and experience tells us that employment expect the following five things from management:

  1. Mutual agreement as to what is expected.
  2. The opportunity to exercise his or her ability.
  3. Feedback on his or her performance.
  4. Direction when needed.
  5. Reward – compensation in equal measure to his or her contribution to the firm.

The problem with staff employee is quantifying and measuring performance so that bonuses are not “Santa Clause” bonuses. A bonus system tied to measurable goals/objectives can, as outlined in my earlier blog, eliminate the problem of bonuses being considered by employees as an entitlement.

Other approaches that some of my law firm clients have used is to develop a limited laundry list of goals with a specific dollar amount tied to each goal for specific positions such a bookkeeper, firm administrator, etc. Typically, there is a cap on how much can be earned per year – 5% – 10% of salary. At the beginning of each year the employee selects the goals that they plan on working on for the upcoming year, obtains approval from his or her supervisor, and both parties sign off on a goal plan for the year. The goals must be SMART goals. Bonuses are paid as goals are completed.

Here are some additional examples:

Bookkeeper 

  1. Reduce accounts receivable over 90 days by 25%
  2. Write and implement an accounting manual by December 31 of this year.

Firm Administrator 

  1. Manage the firm within the approved expense budget for the year.
  2. Reduce staff turnover during the year by 25% below an average of the past three years turnover history.
  3. Reduce headhunting fees for staff by 40% below an average of the past three years.
  4. Write and implement an Employee Handbook by December 31 of this year.
  5. Implement a new time and billing system by December 31 of this year within time and cost budget.

The key to the goals is that they are important to the firm and are measurable.

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

Feb 06, 2018

Partner Withdrawal from a Law Firm

Question: 

I am a partner in a law firm in Walnut Creek, California with four other partners and three associates. We are a general practice firm and our clients are primarily individual clients. I have a good relationship with my other partners. I have decided to leave the firm and join a larger firm in San Francisco. I have notified my partners in writing of my intention to leave and they are supportive of my decision. Therefore, I anticipate a amicable withdrawal. Since this is the first time that a partner has left the firm for any reason we are not sure what the next step is. Please share with us any thoughts that you have.

Response: 

It sounds like you will be fortunate enough to have an uncontested withdrawal. Leaving a partnership takes planning and foresight. If your firm has a partnership, shareholder, or operating agreement your have a starting point. However, even if you have such an agreement, I have found that in most cases there are still a myriad of issues and details that still have to be resolved. You and your partners will still need to negotiate the terms for your withdrawal and ultimately sign a withdrawal or separation agreement. Your partners may be unhappy about certain issues, or in you leaving, but in the end, will do the right thing either because they have to or because they want to.

While there are a lot of moving parts and details to tend to the major issues that have to be resolved when a partner withdraws from a partnership involve:

I suggested you start by developing a project plan outlining all the tasks and sub-tasks with start dates, target completion dates, dates competed, and to whom is assigned to each of the tasks that are going to have to be accomplished. At the top of the list will be to negotiate a withdrawal or separation agreement that addresses the above issues and minimizes your risks and future liability. Here is a checklist you can use to get started:

  1. Review the firm’s current partnership, operating, or shareholder agreement to ensure that you follow any and all withdrawal requirements.
  2. Identify all assets and liabilities, on and off balance sheet, and come to an agreement with your partners on the status of those assets and liabilities and any ongoing responsibility that you may have.
  3. Identify all contracts, liens, mortgages and other obligatory documents that name you personally or where you otherwise act as a personal guarantee or surety.
  4. Based on the above information, negotiate withdrawal terms.
  5. Have yourself removed from all obligatory documents and/or where you a personal guarantee or surety.
  6. Draft a withdrawal agreement that documents everything, and have it executed properly by each of your partners.
  7. If there is a long-term commitment by the firm to you to pay you money over time, or retire some form of debt, consider mechanisms to enforce those commitments, including the right to audit or security interests.
  8. Make sure your name is removed from all firm formation documents, including to the Operating Agreement (for an LLC), Partnership Agreement, Shareholder Agreement or Bylaws, Corporate Register (if a C-Corp or S-Corp, Articles, and with the IRS, if your name was used as the responsible party when your FEIN was obtained.

Once you have a withdrawal agreement in place you can begin to address some of the other tasks that will have to be addressed. Review your state’s rules of professional responsibility concerning withdrawal – particularly those pertaining to client notification, conflicts of interest, etc.

Click her for our blog on partnership matters

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

 

 

 

 

 

Jan 31, 2018

Law Firm Leadership – Profile for a Legal Administrator for an Eight Attorney Firm

Question: 

Our firm is an eight attorney estate planning firm in the Chicago area. Our firm has grown from two attorneys to our present size in four years. We have five partners and three associates. Currently management is handled by a managing partner. The partners have been discussing hiring a legal administrator. We were thinking of hiring someone with experience in managing law firms and a solid background in human resources and bookkeeping/accounting. One of our clients suggested that we hire someone with a strong academic background, MBA, CPA type that has served as the CEO of a mid-size corporation. What are your thoughts?

Response: 

I think you are too small to justify hiring a person with this background that is currently employed in such a role. Such a person would be unaffordable and if you could locate such a person your firm would probably be a stepping stone until they find a position elsewhere. If you were able to find someone that is retired and willing to work in a small firm setting that could be a possibility. Another option would be to hire someone that has served as CEO, COO, or CFO of a smaller company – with or without MBA, CPA designation. You could also look for an experienced legal administrator that has worked in a larger firm – possibly with a CPA or MBA. Again affordability will be an issue as well as long term retention. Personally, at your current size I think you should look for someone with BA or MBA degree in business, with a strong background in accounting and human resources, and experience as an administrator in a law or other professional services firm such as an accounting firm, consulting firm, engineering firm. Look for someone that has worked in a firm with 15-35 attorneys/professionals. Be careful of applicants that have worked in very large firms – i.e. 50+ attorney firm for example, as they may only stay a short while in a firm your size and move on to a larger firm when a position becomes available. They may also not be the “hands on jack of all trades” administrator that you need in a firm your size.

Click here for our blog on governance 

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

Jan 23, 2018

Client Satisfaction Surveys in Law Firms

Question: 

Our firm is a seventeen attorney firm is San Diego. We are a boutique business litigation firm and we represent companies of all sizes. We represent several Fortune 500 companies. I am a member of our three member marketing committee and during our last meeting one of our members suggested that we consider a formal survey of our clients. What are your thoughts regarding client satisfaction surveys? Is this something we should consider?

Response: 

Personally, I believe that if you represent institutional clients such as yours, that soliciting feedback from clients and acting on that feedback is one of the best marketing/client development investments that a firm can make. During a recent client satisfaction telephone interview with a corporate client of a law firm a client told me, “If our lawyers would pay just a little more attention to us, take us to lunch once in a while – without billing for the time . . .if they would treat us like they care … I’d give them all of our business in the entire state of California.” Statements of this sort are not at all uncommon in client satisfaction interviews. Of all investments of a  firm’s marketing budget, none is as cost effective as a client satisfaction survey.

A law firm’s existing clients are important source of continuing and new business for the firm. The most efficient way to bring in business is to sell additional work to existing clients.

Surveying the firm’s clients is an effective method of monitoring satisfaction. It is the first step towards improving client relations and increasing revenue from the current client base. A well-designed client satisfaction survey can help a firm do the following:

For firms that represent institutional clients I believe that structured telephone interviews are the best survey method.

I have had situations where law firm clients have advised me that they had stopped sending files to the firm due to a relationship issue with a particular partner and the law firms, after being appraised of the issues, were able to resolve the problem and repair the relationship.

There are several articles on our website – see links below – that discuss client satisfaction survey programs and how to get started.

Click here for our blog on client service

Click here for our article on client satisfaction

Click here for our article on client surveys 

Click here for our article on analyzing survey results

Click here for our article on developing your client service improvement plan

Click here for our article on tips for rewarding and recognizing employees

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

 

Jan 17, 2018

Attorney and Staff Performance Compensation

Question: 

I am the firm administrator for a twenty-two attorney firm, twelve partners and ten associates, in downtown Chicago. I have been with the firm for seven years. The firm pays the associates and staff a base salary plus a end of year discretionary bonus which is the same for all staff and associate attorneys. The firm does not do performance reviews and honestly I believe the raises are simply an annual cost of living adjustment and the bonus at the end of year a gift. Many of our associates and staff have been here for many years and salaries are getting out of control. We would welcome your thoughts.

Response: 

There are two basic compensation philosophies, which should be seen at opposite ends of a continuum. At one end is the entitlement philosophy and at the other end is the performance-orientated philosophy.

Entitlement Orientation

The entitlement philosophy can be seen in many firms that traditionally have given automatic increases to their employees every year. Further, most of those employees receive the same or nearly the same percentage increase each year. Firm’s and employees that subscribe to the entitlement philosophy believe that employees who have worked another year are entitled to a raise in base pay, and that all incentives and benefit programs should continue and be increased, regardless of changing economic conditions. Commonly, in firms following the entitlement philosophy, pay increases are referred to as cost-of-living raises, whether or not they are tied specifically to economic indicators. Following an entitlement philosophy ultimately means that as employees continue their employment lives, firm cost increase, regardless of employee performance or other firm competitive pressures. The firm acts as Santa Clause at the end of the year, passing out bonus checks that generally do not vary from year to year. Therefore, employees “expect” to receive the bonuses as another form of entitlement.

Performance Orientation 

When a performance orientated philosophy is followed, no one is guaranteed compensation just for adding another year to firm service. Instead, pay and incentives are based on performance differences among employees. Employees who perform well get larger compensation increases; those who do not perform satisfactory receive little or no increase in compensation. Thus, employees who perform satisfactory should keep up or advance in relationship to their peers in the labor market, whereas poor or marginal performers should fall behind. Bonuses are paid based on individual, practice group, or firm performance results.

Few law firm are totally performance-orientated in all facets of their compensation systems for staff and attorneys. However, more and more firms are breaking the entitlement mode and associate and staff compensation systems are being redesigned for that are performance focused. Santa Clause bonuses are being discarded and replaced with measurable performance bonuses. Salary increases are being tied to increases in skills, competencies, and overall performance based upon performance reviews.

Click here for our blog on compensation

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

 

 

Jan 10, 2018

Increasing Case Volume in a Personal Injury Law Firm

Question: 

I am a partner in a two partner personal injury firm in Tampa, Florida. We do not have any associate attorneys. Our firm only handles personal injury work. We have been in practice for thirty-five years and have been very successful over the years. However, the last few years have been terrible. Adjusters are not settling cases and the days of three times specials is over. Our case volume is down, the quality of cases that we have in our inventory is far below what we had in previous years, and our revenues are down substantially. Cash flow is awful. We have had to live off of our credit line for the past year. Our main source of business over the years has been referrals from past clients and other lawyers, yellow pages, and our very basic website. We would appreciate any thoughts and suggestions that you may have.

Response: 

This is a common complaint that I have hearing from personal injury firms across the country. In some states tort reform is having an impact and insurance companies are getting harder to deal with. Extensive advertising by other law firms is having a major impact. Larger personal injury firms that are doing extensive television and other forms of advertising are doing well. Here are a few thoughts:

  1. Your ages may be having an impact. I would guess that the two of you are at least in your sixties or later. Your market may be gradually retiring each of you based on your age. You may want to consider your succession strategy and finding a way to bring is some younger attorneys. When I chose my last doctor and dentist I asked the receptionist at their offices how old they were. Attorneys doing insurance defense work often find that their insurance company clients often begin sending them less cases (or none) as they get into their 70’s and 80’s.
  2. TV advertising works for personal injury but requires a major investment and commitment. In order to be successful with a TV campaign you would need to commit to one year. I doubt that you are in a position to do this.
  3. Work your referral sources – particularly attorneys. Many attorneys as they get older stop or reduce their networking and as a result are not getting the attorney referrals that they used to receive. In fact, many of your attorney referral sources may have retired themselves.
  4. Traditional marketing using “push” or outbound techniques such as TV, radio, and print advertising are giving way to “pull” techniques as people are using the internet to shop and gather information. Pull techniques involve internet search engines, blogs, and social media such as Twitter, Facebook, LinkedIn, YouTube, and others. Your website should be your marketing hub and it should be more than a basic webpage. It should be loaded with content and information and designed in a way that search engines place you well in their rankings – especially Google. Suggest that you consider the following:
    1. Create lots of content people will want to consume and place on your website.
    2. Add a blog to your website and post new content at least weekly.
    3. Focus on where the action is – Google, blogs, social media sites.
    4. Setup Facebook and LinkedIn accounts for the firm and the individual attorneys and post content to Facebook weekly.
  5. Have your website reviewed as to how well it ranks as far as searches in Google. Consider having your site optimized for Google if necessary.
  6. Personal injury firms, due to the internet advertising by personal injury firms, have a hard time standing out in Google search ranking without paid ads. Consider a pay-per-click add on Google if you are not ranking well in Google.
  7. Client leads coming in through TV and the Internet require quick response. The biggest mistake that many law firms make is making investments in TV advertising or pay-per-click internet advertising and then not responding to inquiries after hours or weekends. Have someone monitoring internet inquiries and getting in touch with prospective clients after hours and weekends.
  8. Measure and track which marketing sources your leads and cases are coming from.

Click here for our blog on marketing

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

 

 

Jan 04, 2018

Law Firm 2018 Initiatives and Goals

Question: 

Our firm is an eighteen attorney insurance defense firm located in Los Angeles, California. We have six partners and twelve associates. We represent insurance companies in personal injury and property claims. Over the last five years our growth and our profitability has been flat. We feel that we have enough work to reach our goals but we just don’t think our people are energized. We have a billing requirement of 2000 billable hours but few of our attorneys are hitting them. The partners met a few weeks ago and set for the first time set some goals for 2018. The firm does not have a business or strategic Plan. Do you have any thoughts on 2018 goals and how best we can implement?

Response: 

Since you do not have a strategic plan I assume that you have not done any formal planning in the past. Even firms that do have strategic plans often fail to engage and energize their team. Here are a few thoughts regarding your 2018 goals and initiatives:

  1. Most law firms are not run like a business. They haphazardly go through the motions without a plan, without structure, and with no order. The first thing I would suggest is for the firm to make a commitment this year to begin running your firm more like a business with more structure, order, and accountability from your lawyers and staff.
  2. If the firm does not have a budget develop a budget this year before the end of January and review the firm’s performance against the budget monthly. The revenue section is particularly important. Build it from the ground up timekeeper by timekeeper. Advise each lawyer and other timekeepers  of their revenue and or hours targets for the upcoming year.
  3. Consider a new year kickoff meeting, possibly breakfast or lunch, to jump start the new year that would include attorneys and staff. During this meeting you can accomplish the following:
    1. Recognize team members that performed well the past year.
    2. Provide information about the firm’s past year performance, where the firm is and where it is headed in the upcoming year.
    3. Review the firm’s mission and purpose and specific firm and individual goals for the upcoming year.
    4. The firm kickoff meeting sets the tone for the upcoming year, communicates firm and individuals goals, and energizes team members and solicits commitment.
  4. During the year consider the following meeting schedule:
    1. Kickoff meeting – attorneys and staff – early January.
    2. Attorney meeting – weekly
    3. Staff meeting – monthly
    4. Partner meeting – monthly
    5. Midyear meeting – attorneys and staff – early July
    6. Budget and Planning meeting – Partners or Management Committee –  early December.
  5. Review your attorney compensation system to ensure that it is rewarding the performance you are seeking.
  6. Review your attorney hiring protocols to ensure that you are getting the right people on the bus.
  7. Dig deeper and look into why attorneys are not meeting billable hours requirements. Possible reasons might be:
    1. Not enough work.
    2. Attorney not putting in the hours.
    3. Attorney has poor time management habits.
    4. Attorney has poor timekeeping habits.
    5. A combination of all of the above.
  8. Implement solutions to above.
  9. Take a tougher approach to those attorneys that are not meeting performance targets.
  10. Conduct formal performance reviews with each attorney and staff member annually.
  11. Commit to starting to work on a strategic plan no later than the third quarter of this year.

Click here for our blog on strategy

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

Dec 27, 2017

Associate Attorneys as a Succession/Exit Strategy

Question: 

Our firm is a Tucson, Arizona business litigation firm. We have four founding partners and four associates. The partners are in their late fifties and early sixties. All four of us are contemplating retirement in the next eight to ten years. We are assuming that our associates will be willing to step up and buy-out our interests. We have not had any discussions with our associates concerning this. Your thoughts will be appreciated.

Response: 

Do you have the right associates on the bus for the long term? In other words, has the firm hired associates that want to be business owners and own a law firm? Many owners and senior partners in law firms are approaching retirement age and are beginning to think about succession strategies. As they examine their associate lawyer ranks, some partners are often surprised to learn that there may be few takers. While their associates may be great lawyers, they may not bring in business or even be able to retain clients that the firm has. They may not be interested in ownership or partnership. Such firms have hired a bunch of folks that just wanted jobs and have no interest in owning a law firm. While this hiring approach may have satisfied the firm’s short-term needs – it may fall short in the long term.

While partnership/ownership is still important to many – do not assume that all your associates will even want to be equity partners – especially if it means a hefty capital contribution and signing personal guarantees for a large amount of firm debt.

I suggest that you talk with your people – individually and as a group – and see where they really stand. Help them to begin developing client development and business skills. Depending on you and the other partner’s retirement timelines – you may have to consider other options such as laterals or merging with another firm.

A key suggestion is to look for entrepreneurial associates when hiring future associates. The desire for ownership of a business is often in a person’s blood. Do not start the interview with a discussion from law school until the present. Dig deeper into hobbies, family, etc. that will provide clues as to whether you may be hiring someone that just wants a law job or someone that eventually wants to own or be a partner in a law firm.

The sooner you begin the better off you will be especially if several partners are close to the same age and looking to retire about the same time. Not only does it take years for associates to be groomed for management and client transition it can also take years for them to be able to pay for their ownership interest.

Click here for our blog on succession

Click here for out articles on various management topics

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

 

Dec 20, 2017

Law Firm Associate Billable Hours – Estate Planning and Probate Firm

Question: 

Our firm is a six attorney estate planning/probate firm in Mesa, Arizona. There are three partners and three associates in the firm. We have had associates for the last eight years and have never made money from our associates. Last year we decided to implement a billable hour expectation of 1800 hours for the associates. A year later no one is even close. Only one associate will even reach 1500 hours. Is our expectation reasonable? You insight is appreciated.

Response: 

The national norms for all practices is in the 1700 range for associates. Litigation firms range from 1800-2000 hours and up with most firms having a 1800 or 2000 minimum billable hour requirement.

I believe that 1800 billable hours is high for a small estate planning/probate firm if the attorneys are only expected to work forty hours a week and the firm does not charge for initial consultations or intake interviews. Many of the estate planning/probate law firm’s that I am working with are struggling to get to 1500 billable hours – many associates and partners alike are under 1400 hours. I believe that an estate planning/probate practice should be able to expect 1600 billable hours.

I think that a forty hour work week expectation for attorneys is part of the problem. Most professionals service providers (attorneys, CPA’s,  management consultants, etc.) work more like fifty hours – not forty. It is hard to be a successful professional with a forty hour a week attitude. In addition to billable hours non-billable time has to be spent on client development, continuing professional education (CLE for attorneys), and firm administration.

Click here for our financial management topic blog

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

Dec 13, 2017

Law Firm Owners Use of a Leadership Team

Question: 

I am the owner of a fourteen-attorney law firm in South Bend, Indiana. The firm is a health care firm that represents various medical facilities in the area. All of the other attorneys in the firm are associates. Currently I function as the managing attorney and make all of the management decisions. I also bring in the bulk of the clients into the firm. I am wanting to retire in the next five years and I would like to sell my interests to three associates in the firm. However, I am not sure that they would be good partners with each other, whether they have the management skills and client development skills to lead the firm, or whether they would even want to be partners. My other option would be to merge with another firm. However, I would prefer to sell my interests to the three associates rather than merge if at all possible. What are your thoughts?

Response: 

I appreciate your situation. I think you need to sort of “pilot test” the three associates. If you had other equity partners I would suggest that you form a three member management committee to begin transferring some of your management responsibilities and client relationships. Since you don’t have any equity partners I would not create or label a management committee which is usually a decision-making body with each member having a vote. You might consider forming a committee that you call the Leadership Team with the three associates and yourself serving as members on the team. This would be an advisory group with you retaining control. You would try to run the group by consensus but you would still be the ultimate decision-maker. I would start by starting the team with limited areas of management, responsibility, and authority. Teach them how to work as a group and gradually increase the team’s responsibility and authority. See how it goes and observe the interpersonal dynamics. After a year you should have a good idea whether they can work together as partners and whether an internal succession strategy will work for you. You might want to create a different category for these associates – senior associate or non-equity partner at the time that you do this as well.

Click here for our blog on governance

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

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