Law Practice Management Asked and Answered Blog

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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.

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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.

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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.

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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.

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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.

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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.

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

Dec 06, 2017

Law Firm Partner Compensation – Dealing with an Overpaid Partner

Question: 

I am a founding partner of a two partner firm in Springfield, Illinois. We are finishing up our third year since we started the firm. We have six associates and our practice focuses on health law. My partner and I each have a fifty percent interest in the firm and our compensation is based on our ownership percentages. We split firm profits fifty-fifty. Ever since starting the firm I have been bringing in substantially more fees that my partner. This year I will bring in sixty-five percent of firm fees. I am getting frustrated and feel that our compensation system is not fair, not working, and needs to be changed. I would appreciate your thoughts.

Response: 

It sounds like you are referring to origination of client business and referencing fees resulting from business that you brought into the firm. Most firms do not consider fee origination as the only partner compensation variable. Working attorney fee collections as well as other contributions such as firm management, mentoring and developing associates, developing firm systems, etc. are also considered when determining partner compensation. Many firms actually give more weight (credit) to working attorney production that to origination while others may give no credit at all.

I think you need to keep in mind overall contributions of each partner – not just client origination. Pull working attorney statistics and include these in your analysis as well as firm overhead consumed. Consider other contributions that each of you have and are making and see where the data takes you. Don’t look at just one year – look at the data over the long term – say three year trends. If you still feel that the compensation arrangement is no longer fair, you and your partner need to sit down and have a heart to heart discussion.

The best approach may be to simply realign your compensation percentages after you have come to terms with the compensation factors that you consider important to the firm and the metrics you are going to use going forward.

If you and your partner can’t sit down and have such a discussion consider getting outside help.

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

Nov 28, 2017

Business Development for New Associate Attorneys

Question: 

I am a partner in a fourteen attorney firm in Denver, Colorado. We have six equity partners and eight associate attorneys in the firm. Our practice is limited to health care law. We represent many of the local hospitals in the area. Our associates range from associates that have been with the firm less than a year to associates that have been with the firm for over fifteen years. None of our associates have developed business development skills and none of them have ever brought in a single client. Most of our associates would not even be able to retain our existing clients if the partners for one reason or another left the firm. This is in part our fault. When we hired them we told them that we had plenty of client work and their mission was to “bill hours” and service our clients. However, as we the partners age and consider the future of the firm we are beginning to realize that this was a mistake. How can we turn this around?

Response:

The earlier that attorneys start to build client development into their weekly routines, the easier it will be for them to bring in business later. Many successful rainmaking attorneys began their business development efforts early in their careers, usually during their first year or two as attorneys. This is a pattern that you want your attorneys to emulate. The firm should set expectations about the kind of effort the firm is looking for at each level in an attorney’s career. It should then support these expectations with appropriate training for each level. Training should begin as soon as an attorney is hired. During the initial firm new associate training session, provide an hour’s instruction on client development. That will help new associate hires realize that they will have to bring in business later in their careers and they can start building a foundation  for later business development efforts immediately. The quantity of education on client development should increase as an attorney advances within the firm. This should be reinforced by mentors assigned to associate attorneys.

When your associates reach the point in their careers when they should be bringing in business, the focus on business development needs to increase. Business goals should be developed and attorneys at this level should be required to prepare annual personal business development plans. These goals and plans should be linked performance reviews and to compensation.

It will take time to create this culture in your firm.  It may be too late for some. I would announce that it is a new day, launch a program, and stay on top of it.

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

 

Nov 22, 2017

Law Firm Growth – Partnership/Merger

Question: 

I am the sole owner of a six attorney energy law practice in Houston. I have had my practice for twenty years and have enjoyed the independence of being the boss but I am tired of being solely accountable for the success of the practice, having to do all the management, and having all the worry and stress. I believe I have reached the point where I am ready for a partner or partners and I believe that the practice can be positioned for growth if I bring in a lateral partner, make a couple of my associates partners, or merge with another firm. I welcome any suggestions that you may have.

Response:

Whether you bring in a lateral partner, elevate your associates to partnership, or merge this will be a major step for you and you will need to do some serious soul searching. Here are some general thoughts:

Partnership is like a marriage. You must marry the right person or persons. Most partnerships that fail do so as a result of partnering up with the wrong partners. Compatibility is critical. Consider:

  1. Long term goals of both parties
  2. Work ethic computability
  3. Common interests
  4. Money and compensation

Thinking of merging? Research indicates that 1/3 to 1/2 of all mergers fail to meet expectations due to cultural misalignment and personnel problems. Don’t try to use a merger or acquisition as a life raft, for the wrong reasons and as your sole strategy. Successful mergers are based upon a sound integrated business strategy that creates synergy and a combined firm that produces greater client value than either firm can produced alone. Right reasons for merging might include:

  1. Improve the firm’s competitive position. Increase specialization – obtain additional expertise.
  2. Expand into other geographic regions.
  3. Add new practice areas.
  4. Increase or decrease client base.
  5. Improve and/or solidify client relationships.

Reasons for wanting to merge and your objectives. Ask yourself the following questions?

  1. Do you want to practice in a large firm? If not, what is the largest firm that you would want to practice in?
  2. What is driving the desire to merge?
  3. If the desire to merge is being driven by a desire to retreat from internal problems – what have you done to address these issues internally?
  4. Is your name being part of the firm name important to you?
  5. What are your expectations and objectives for a merger?
  6. What are you looking from a merger partner?
  7. Make sure that you look for a complimentary fit. If you are weak in firm leadership, management and administration – look for a partner that is strong in these areas. Strong leadership, management, and administration may be hard to find in a firm under 25 attorneys.

Partnering up with others can be a great move for you if you make the right people partners for the right reasons or merge with the right people for the right reasons. Due your due diligence and your homework.

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

 

Nov 15, 2017

Law Firm Marketing – Paid Seminars

Question:

I am a partner in a six-attorney estate planning firm in Dallas, Texas. For many years our primary marketing activity has been seminars that we put on for clients, prospective clients, and referral sources. These seminars have been either put on solely by our firm or in partnership with other organizations such as nursing homes, hospitals, etc. These seminars have been free of charge. We provide a lot of value at these seminars and have been wondering whether we should charge a fee. We would appreciate your thoughts.

Reponse:

Do not assume that you must offer free seminars to get a marketing-benefit spinoff nor that only free seminars produce other business. In some respects paid-attendance seminars are even more powerful as marketing media than are free seminars. For one thing, the attendees who pay to attend are serious prospects. They are prospects that are qualified at least to the extent of having demonstrated serious interest in the subject, whereas at least some attendees at a free seminar are curiosity seekers with nothing better to do that afternoon or evening.

This is balanced by the heavier attendance at the free seminar, which may produce a greater number of good prospects, if not a better ratio of good prospects to curiosity seekers. That is there is a presumption of heavy attendance, for there is no guarantee of heavy attendance even at a free seminar.

There is a compromise position possible. You may opt to subsidize your own seminars by keeping the cost of attendance low which should produce good attendance, while still screening out the idle curiosity seekers. This would enable you to have modest registration and attendance fees.

I suggest that you review your past attendance history, ratio of attendees that have become paying clients, and determine whether you have an issue of curiosity seekers. If you have been doing a good job converting attendees to clients and have not had a problem of curiosity seekers I would probably stay with free seminars. If you have problems with curiosity seekers and your costs are getting out of control – I would consider modest registration and attendance fees. I would not look to these seminars as being a profit center for the firm.

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

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