Law Practice Management Asked and Answered Blog

Category: Measuring

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:

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.
If the issue is lack of software reporting capability try to get the software company to add this function to the software.
Manually making the allocations in a spreadsheet for flat fees cases when all else fails.
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

Aug 22, 2017

Measuring Law Partners’ Performance

Question:

I am a partner in a twelve attorney firm in Houston. The firm has five partners and seven associates. We are a first generation firm and we, the partners, have never practiced in other law firms. Currently, the partners have equal ownership interests and are compensated equally. We are experiencing issues with the present method of partner compensation and we are giving some thought to considering other approaches. One of the issues that we are trying to get our heads around is how to measure each partners’ performance – value – and overall contribution to the firm. Do you have any suggestions?

Response:

The first step in a partner’s compensation plan is to develop a system for measuring each partner’s performance. Measuring performance involves selecting the appropriate: (1) performance measurement factors, (2) performance measurement programs, and (3) performance measurement reports.

Performance Measurement Factors

Each firm must decide on its own particular basis for rewarding quality performance by its partners. Factors must be selected against which each partner’s performance can be measured. Then the firm must decide how much weight to assign to each performance factor. The performance factors commonly used to measure partner performance include: (1) professional competency, (2) business development, (3) productivity, and (4) profitability.

Professional Competence

A partner’s professional competence is usually the most important factor in measuring partner performance and is the most difficult to measure because it cannot be easily quantified and it has to be determined subjectively. In addition to technical proficiency professional competence also includes leadership ability, associate mentoring and development, management contribution, and other contributions made to the firm.

Business Development

In many firms a partner’s ability to generate new business is an important performance factor in measuring partner performance. Client origination can be measured in terms of fees generated from new clients and fees generated from new business for existing clients.

Productivity

A partner’s productivity can be measured by determining a partner’s: (1) chargeable hours related to client matters and (2) nonchargeable hours related to those firm matters which the firm has recognized an important partner responsibilities. Another approach is measuring billed or collected fees. Another measure of a partner’s productivity is his or her pyramid of responsibility – the number of associates chargeable hours or collected fees for which the partner is responsible.

Profitability

A partner’s profitability can be measured using three factors: (1) fees billed to clients, (2) realization of fees billed and (3) speed of collection of fees billed. Other measures include collected, effective rate per hour, etc.