Law Practice Management Asked and Answered Blog

Category: Bonuses

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.

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

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

Dec 27, 2016

Law Firm Staff Compensation – Bonuses for Staff

Question:

I am the sole owner of a four attorney firm in St. Louis, Missouri. Our firm has four staff members – 2 legal assistants, a receptionist, and a office manager/bookkeeper. It is that time of year again where I anguish over year end bonuses for staff which end up being Santa Claus bonuses with no relationship to actual performance. I would like to move away from this approach and tie their bonuses to performance. How do I measure performance for bonuses?

Response:

I like to tie salary increases to performance reviews tied to skills, competencies, value of the position in the market, cost of living, etc. Bonuses on the other hand should be tied to accomplishment of specific measurable results. Since staff results usually cannot be measured in terms of billable hours or collected dollars another measure must be used. I prefer to tie bonuses to accomplishment of specific agreed to goals or objectives.

Here is a system that some of my clients are using:

  1. Four goals are set at the beginning of each year.
  2. Two of the goals are firm goals. One goal might be for the firm to hit a certain revenue target. Another goals might be for the firm to hit a certain profit margin target.
  3. Two goals are personal/individual staff member goals that are discussed and approved by you.
  4. Goals should be SMART goals
    1.     S – Specific
    2.     M – Measurable
    3.     A - Attainable
    4.     R – Realistic
    5.     T – On a specific timeline
  5. Each goal (firm and personal) is worth 2.5% (maximum 10%). The percentage is taken times annual base salary of the staff member to determine bonus.
  6. At the end of the year determine which goals were met and calculate bonus.

The goals should be tough.

Example of individual goals that meet the SMART test:

  1. Write and publish an Employee Handbook by December 31, 2017.
  2. Write and publish an Office Procedures Manual by December 31, 2017.
  3. Successfully complete six hours in accounting at a local college by December 31, 2017 with a grade of B or better.

Other approaches can be taken – the key is to tie variable bonus to actual results.

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

 

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