Law Practice Management Asked and Answered Blog

Category: Attorney

« Earlier

Oct 23, 2019

Associate Attorney Compensation – Incentives Beyond Billable Hours and Working Attorney Collections

Question: 

I am the owner of a five attorney firm, myself and four associates, in Bakersfield, California. While we are a general practice firm, much of our practice is focused on commercial real estate, estate planning/probate, and corporate/business law. All of the associates have been with the firm over five years. The associates are paid a salary plus a bonus based upon their individual working attorney collections that exceed a quarterly threshold. While there have not been any complaints with this system I am not sure that it is the best system and that I am providing the right set of incentives. I would appreciate your thoughts and any ideas that you may have.

Response: 

Many firms use a system such as your system. However, other firms add more factors into the equation. A system that focuses on billable hours or individual working attorney fee collections often creates a firm of lone ranger attorneys that:

You might want to consider additing a component that recognizes delegation to paralegals and other attorneys (responsible attorney collections) and client origination (originating attorney collections). Some firms rather than rewarding client origination directly pay a bonus for handling new client intakes and successfully closing new business in the form of a flat dollar bonus after designated thresholds. You could also pay flat dollar bonuses for contribution to firm and business development – not time or activity – but for specific results such a having articles published, implementing a document assembly system, or writing a procedures manual. If you wish to avoid a formula approach simply use a discretionary bonus to reward firm these other factors and firm contributions. However, be clear about the factors that are be rewarded and the importance/weight of each.

Click here for our blog on compensation

Click here for articles on other topics

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

 

Oct 10, 2019

Finding and Training in a New Estate Planning Attorney

Question: 

I am the owner of an estate planning firm in the Western Chicago suburbs. My practice is a specialized practice that focuses on estate planning, estate administration, estate litigation, and elder law. While I was a solo practitioner for many years approximately four years ago I brought in an associate that had three or four years experience with an other estate planning firm. Unfortunately, he just gave me his notice and advised that he was leaving to join another firm. We have too much work for me to handle by myself and I am going to need another attorney with estate planning experience. How do I go about finding this person. Any suggestions that you have will be appreciated.

Response: 

I have assisted several of my Chicagoland estate planning law firm clients as well as clients in other parts of the country and I can tell you that experienced estate planning/administration and elder law attorneys are like gold and hard to find. This was even the case during the 2008 recession when recent law school graduates and experienced attorneys with other skill sets were having difficult times finding jobs. Now, with the current job market, finding experienced estate planning/administration and elder law attorneys is even more difficult. Many of these attorneys tend to work in small firms, are loyal to their firms, and less mobile. They tend to stay put and often remain with one law firm for their entire careers.

I would start your search for an experienced attorney by:

  1. Putting the word out through your professional network. Ask around.
  2. Prepare an ad for the position
  3. Post the ad with www.indeed.com, ISBA.org Career Center, LinkedIn, local suburban bar associations, and local law schools.
  4. Have resumes come to you electronically.
  5. After initially reviewing resumes and narrowing down to candidates of interest use a telephone interview as your first interview and face to face for a subsequent interview if appropriate.

If after thirty days or so you are having no luck you might have to consider using a local headhunter or simply looking for a recent law graduate and investing the time to train a new attorney.  Several of my estate planning/administration and elder law clients are having to hire new law graduates and train them. Many have been quite satisfied with the results and now believe it is the best way to go. Recent law graduates start with a clean slate and do not bring in any baggage or bad practices or habits picked up in other law firms. They are often more loyal and stay with the firm longer.

A few suggestions concerning recent law school graduates:

  1. Look for candidates that took elective courses in estates/trusts/elder law.
  2. Look for candidates that had meaningful clerking experience with law firms specializing in estate planning/administration and elder law. Not running errands but meaningful experience.
  3. Develop a comprehensive training plan with specific timelines designed to get the attorney billable and productive as soon as possible in easier forms of work (possibly guardianship) and then gradually move the attorney into simple estate plans and more complex areas over time.
  4. Be patient – the process will take time – consider it an investment.
  5. It will take time for you to make money from the new associate. Be happy if you cover the cost of the associate in the first year.

Click here for our blog on career management

Click here for our blog on human resources

Click here for articles on other topics

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

Jun 26, 2019

Law Firm Succession Strategy When Candidate Associate Attorney Says No to Your Proposal

Question: 

I am the owner of a law firm in Mesa, Arizona. I started the firm twenty-five years ago. Our focus is exclusively on estate planning and we serve clients throughout the Phoenix metropolitan area. There are three other associate attorneys working in the firm as well as staff. One of the associates has been with the firm for ten years and the other two are right out of law school – one was hired this year and the other one year ago. I am sixty-three years old and I would like to retire and exit the practice within the next three years – the sooner the better as I have other interests that I would like to pursue.

For several years it has been my goal to transition my practice to my senior associate and he and I have discussed this vaguely over the years – just the idea in general – no specifics. Recently, I made a proposal to him where he would gradually buy my shares over the next three years and have all my shares paid for by the time of my retirement which would be three years from now. To my surprise he refused. Where do I go from here?

Response: 

Getting a “no” is not unusual. We are experiencing this quite frequently in our succession planning projects. Often this results in the firm exploring external succession strategies and having to merge with another firm or selling the practice. First of there is not the hunger for “equity” that there was thirty years ago. This is due in part to the fact that in many firms – large and small – there is now a non-equity partner status with the recognition of partner status, additional compensation and perks, and none of the risks of equity partnership. In addition, work life balance is important to many attorneys and many are unwilling to give up work life balance in exchange for the stress of equity partnership. Finally, many candidate associate attorneys either don’t have the capital/financial resources often required to obtain equity or don’t see the payback or return on their investment should they buy-in.

Here are a few thoughts concerning your situation:

  1. Reevaluate your proposal. Is the price you are asking for your shares reasonable and affordable for the candidate based upon the actual profits (your earnings) generated by the firm? If the price is not reasonable or affordable for the candidate consider providing an alternative proposal.
  2. Even if the price is reasonable and affordable, three years may not be a long enough period. You may have to settle with getting some of the value say three to five years after your retirement. Consider this as an alternative.
  3. Your associate may be reluctant not because of the terms but because he does not really want to own a law firm – he just wants a job as a lawyer. If this is the case it does not make any difference what you propose and you need to examine other options such as bringing in a lateral that is willing to take over your practice or a merger or sale of the practice.

Click here for our blog on succession

Click here for out articles on various management topics

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

May 29, 2019

Associate Attorney Productivity When Client Work is Slow

Question: 

Our firm is a sixteen attorney municipal law firm in Detroit with six partners and ten associates. Like most firms that do municipal work we must deal with lower billing rates than other firms charge. The volume of our work can also fluctuate at times. All of our work is billed by the hour and billable hours is our most important key performance indicator. Our associates have a billable hour expectation of 1800 annual billable hours and only two of our associates are even close to reaching 1800 hours. Some are not even reaching 1200 hours. Some of the associates have the excuse that they don’t have enough work. We do not believe that this is the case. I would like to hear your thoughts on this matter.

Response: 

This seems to be a common issue. Failure to attain billable hour goals can be caused by any one or a combination of the following:

  1. Work ethic and simply not working enough “worked hours”
  2. Lack of work
  3. Poor time management habits
  4. Poor time keeping/recording habits

I would start by observing the number of worked hours they are putting in. Are the putting in the hours? Observe as well as review their time reports – billable and non-billable time. If you don’t track non-billable time start doing so. Then review and discuss with them their time management and time keeping/recording habits. Questions to ask include:

Review and discuss workload levels of each associate and determine if lack of work is an issue.

I have found that often the cause of the problem is a combination of some or all four of the above listed causes. Lack of work is often one of the causes. My question is then:

The firm should have an established protocol for assignment of work to associates and to whom the associate advises that he or she needs more work. When billable work is slow and not available the associate should be assigned non-billable firm or business development projects  such as developing document templates, writing articles, etc.

If the problem is work ethic appropriate consequences and disciplinary measures may be required.

If the problem is time management and time keeping training and habit building will be required.

Click here for our financial management topic blog

Click here for articles on other topics

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

 

 

 

May 07, 2019

Law Firm Succession Planning in a Fourteen Attorney Firm – Internal vs External Strategy

Question:

I am the managing partner in a fourteen attorney firm in Austin, Texas. Our firm represents hospitals in their defense against malpractice claims. We have four equity partners, six non-equity partners, and four associates. The four equity partners started the firm thirty years ago and we are all in our late fifties and early sixties. We plan on working another eight years and then plan on retiring approximately at the same time. We may remain on as Of Counsel. Of our six non-equity partners, five are in their early and late sixties. We are considering making one an equity partner in the near future. Our associates are all recent law graduates that we hired right out of law school and all have been with the firm less than five years. What is our best succession strategy – merger or growing our own future partners?

Response: 

Most firms, and I agree with this, prefer an internal strategy and would like to grow their own and leave a legacy of the firm. Mergers can be fraught with problems and are often not successful. Depending on the size of the other firm, many firms are not willing to provide any compensation for practice goodwill beyond the compensation and benefit package. It sounds like you have had your independence for thirty years and you may not be comfortable giving that up and working in a merged firm environment for eight years.

However, a merger is often easier. You have a challenge on your hands since you have to replace four partners and only have one possible future equity-partner candidate on deck. In part it will depend upon the age and the experience of the one non-equity partner. Is he even willing to step-up to equity, invest in the firm, and buyout your interests? My experience these days is that a lot of non-equity partners are saying “no” to equity. With your type of clients you probably need at least three or four seasoned partners in order to convey to the clients that you have adequate “bench strength”. When the four of you retire unless you can build up the bench strength the firm will be also lacking leadership and firm management experience.

You have five years in which to build up your talent pool. You will have to first see if you can recruit and bring in some lateral talent – attorneys in their forties with fifteen to twenty years experience. Look for attorneys that want to be more than just worker-bees – that want to have future equity interest in a firm. If this strategy works out, begin bringing them into equity as soon as possible to ensure that the commitment is there by having them buy shares upon admission. Begin client and management transition no later than three years prior to your retirements.

If you are not able to bulk-up your talent pool or you have no one interested in equity ownership, then you will have to consider a merger strategy. I would begin a merger search three years prior to your retirements.

Click here for our blog on succession

Click here for out articles on various management topics

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

May 01, 2019

Law Firm Associate Bonuses – Problems Measuring Flat Fee Work Working Attorney Fee Allocations

Question: 

Our firm is a four-attorney estate planning firm in Rochester, New York. We are a general practice firm and we handle a lot of estate planning work and estate administration as well. While some of our work is handled on a time bill basis a lot of our work is handled on a flat fee basis. Recently we switched our time billing system from a desktop-based system to a cloud-based system and we having trouble getting the reporting that we need out of the system. We do keep time on flat fee cases. Our bonus system is based on working attorney fee collections and the new system does not allocate fees correctly for flat fee cases when multiple attorneys and or paralegals work on a matter. Any suggestions?

Response: 

I have heard this complaint from many firms using both desktop and cloud-based billing systems. However, it does seem that cloud-based systems are lacking in the level of reporting that desktop-based systems have. Here is what some firms have or are doing:

  1. Working with the software vendor to determine what the issue is – is it your procedures or is it the software. In some situations, fee allocations are effected by the manner in which payments are entered when partial fee payments are made, whether such payments are first deposited in the trust account and then later applied after all time has been billed and adjusted, etc.
  2. If the issue is lack of software reporting capability try to get the software company to add this function to the software.
  3. Manually making the allocations in a spreadsheet for flat fees cases when all else fails.
  4. Changing the bonus system and basing bonuses on responsible attorney collections rather than working attorney collections. Many personal injury plaintiff firms that don’t keep time-sheets take use this approach. This approach works best if the attorneys primarily work on their own matters. One advantage of this approach is that it encourages delegation and discourages hoarding of work.

When evaluating these newer cloud-based billing systems don’t just look at the bells and whistles – determine your reporting needs and insure that the software meets these needs.

Click here for our blog on compensation

Click here for our blog on technology

Click here for articles on other topics

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

Mar 20, 2019

Associate Attorney and Non-Equity Partner Compensation

Question: 

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?

Response: 

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.

Click here for our blog on compensation

Click here for articles on other topics

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

Jan 16, 2019

Improving Productivity and Profitability in a Sole Owner Six Attorney Insurance Defense Law Firm

Question:

I am the owner of a six attorney insurance defense firm in Indianapolis, Indiana. I started the practice twelve years ago with myself and a paralegal and have grown the firm to where is is today – six attorneys, two paralegals, and two other staff members. While I have done well, and am taking home around $350,000 a year, I am not sure if we are attaining the numbers that we should be. I have a fifteen hundred billable hour expectation with a per hour bonus payable for each billable hour exceeding fifteen hundred. I do not have any attorneys that have reached this expectation. Our billing rates average around $150 per hour. I am wanting to put in place a partnership track and am not sure where to start. You thoughts would be appreciated.

Response: 

Let me first illustrate the profitability levers for law and other professional service firms:

R – Rate – billing rate (effective rate, realization rate, etc.).
U – Utilization – the number of billable hours.
L – Leverage – the number of associates/paralegal, etc. to owners or equity partners.
E – Expenses – office overhead
S – Speed – time it takes from the time work is done to when cash comes in the door.

With the low billing rates that are prevalent in insurance defense firms the primary profitability levers that can be managed in an insurance defense practice are utilization, leverage, and expenses. Insurance defense firms need 1800 – 2000 annual billable hours from their associates, a high leverage ratio of three or four associates for every equity partner, and low expenses  – i.e. no frills office space.

You are doing fine now with regard to compensation but this would not be the case if you had partners – the profits would not be there to pay higher salaries. Less than 1800 annual billable hours is not acceptable and it sounds like there are no consequences for non-attainment of the 1500 hours. You need to look into the reasons as to why your associates are not attaining the 1500 hours. Possibilities could include:

If there is enough work you need to focus on the other factors and let everyone know what the consequences are for not attaining the billable hour expectation. Start with the 1500 hour expectation as an initial baby step but then increase the expectation to 1800 hours as soon as your can.

As you think about a partner track keep in mind the issue of leverage and don’t be temped to make too many partners.

Keep an eye on your expenses.

Click here for our blog on strategy

Click here for our blog on profit improvement

Click here for articles on other topics

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

 

 

 

Dec 06, 2018

Hiring an Associate Attorney as a Solo’s Exit Strategy

Question: 

I am a solo practitioner in Central Illinois. I have been in practice for 30+ years and I just turned sixty. I have two staff members and no other attorneys in the firm other than myself. I plan on working another five years and then I would like to gradually exit from my practice and then retire. I want to have a home for my clients and employees and I would prefer to be able to sell my interest to an associate attorney working for the firm. I think we have the work to justify hiring an associate and this is the route I would like to go. I have never had an associate so I am not sure what I should look for. Your thoughts would be most appreciated.

Response: 

I believe that an internal succession/exit strategy is your best option if you can find the right associate. Unlike years ago, there are many associates today that just want a job and work/life balance is more important than taking on an ownership role in a firm. They simply are not interested in the work, stress, and risk that it takes to own and manage a law firm. So it is important when searching for an associate that you really vet out this interest to insure that you are hiring someone that will be willing to buy out your interest when you retire and take over your practice.

I have worked with a lot of firms that think they have an exit plan via an associate only to be told no when approached with a proposal to acquire their practice.  When you interview candidates look into their history and their family history to see if you can find a hint of entrepreneurship. You may want to hire a more seasoned attorney that has a small practice that could expand his or her practice by becoming part of your practice. Hire someone that has an interest in the business of law as well as practicing law.

Click here for our blog on succession
Click here for out articles on various management topics

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

Nov 28, 2018

Associate Attorney Mentoring and Giving Feedback

Question:

I am the owner of an elder law firm in Jackson Mississippi. There are three associate attorneys working in the firm that have been with me under five years. All three were hired directly out of law school. While I try to mentor and train each of the associates as needed in “real time” I also conduct annual performance reviews with each associate and provide them with a written performance evaluation. I am getting frustrated as it seems that the feedback that I provide them does not stick and they continue to make the same errors and mistakes. I welcome any thoughts that you may have.

Response: 

You may need more frequent discussions that are scheduled. I have some law firm client owners  that have an ongoing scheduled meeting with each associate twice a month. You may also want to examine how you actually provide feedback to your associates. Often owners beat around the bush and don’t really provide meaningful feedback.

Giving meaningful feedback contributes an essential component to effective associate management. Whether you give feedback informally, midway through the work or at the end, or formally through a scheduled  evaluation process, it gives you a powerful management tool, assisting individuals in professional development, teaching those you manage to work more effectively, and giving recognition and showing appreciation when deserved.

Effective feedback should be:

Praise you associates when deserved. Praise provides an effective motivator for most associates and should include:

Provide constructive criticism when deserved. It should include the items listed above and you should give it:

Use the following outline when giving constructive feedback:

Try to implement some of these ideas and go from there.

Click here for our blog on career management

Click here for our blog on human resources

Click here for articles on other topics

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

Archives

Categories

    Subscribe to our Blog