Our firm is based in Springfield, Illinois. We have four partners and four associates. We are a general practice firm. All of our associates have been with the firm over ten years and each of them are receiving $100,000 base salaries plus discretionary bonuses. Our associates are excellent attorneys however none of them bring in any business and their production numbers are low. Annual billable hours are below 1200 and working attorney fee collections are below $300,000. We have not given raises or bonuses for the last several years. We are losing money on some of our associates and not even covering our overhead alone making any profit from our associates. We are at a loss as what to do. Please share any thoughts or ideas that you might have.
It would be interesting to know whether you set production goals such as billable hours or working attorney fee collection goals for your associates and if and how they are enforced. Billable hours should be in the range of 1600-1750 per year and fee collections should be $300,000+ for associates being paid $100,000 per year. It sounds like production goals either don’t exist or are not enforced.
I suggest that you look in to the cause or causes of your associates low production. Here are a few questions you should ask yourselves concerning the cause of your associates low production:
I suggest that you meet with each of your associates, address the above questions, and determine what is going on. It could be one or all of the above. If the firm does not have enough work for the associates you need to determine if partners are delegating sufficient work, whether business is down at the firm (short-term vs long-term), and whether the firm may have too many associates for the work that is available. If there is simply not enough work, has not been enough work for some time, and it is projected that the firm’s workload will be the same for the foreseeable future the firm will need to consider eliminating an associate’s position or reducing the work hours, and compensation, of one or more associates. If the work is there and associates are just not working and putting in the hours you need to insure that goals and consequences for non-performance are in place – you might want to consider changes your compensation system. If associates are having problems with time management or timekeeping conduct some training sessions and coaching.
Some firms have changed their systems whereby associates are paid a base salary plus a bonus for billable hours or collected fees over a predetermined threshold. However, incentive bonus work better when salaries are kept low. Often when salaries reach $100,000 or more additional bonuses may not motivate attorneys that are not hungry for more, are comfortable, and their priority is work-life balance.
While you must get associate compensation right in order to acquire and retain top associate 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 only about the money or compensation package.
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.
John W. Olmstead, MBA, Ph.D, CMC
Our firm is a fourteen attorney firm in Chicago. There are nine partners and five associate attorneys in the firm. Our practice is limited to insurance defense. I am one of the founders and senior partners in the firm and have been practicing for 35 years. We are having problems getting our associates to produce at the levels that we need for the firm to be profitable. We have a 1800 annual billable hour requirement and several of our associates aren’t even close. We have a bonus system that pays associates a bonus based upon billable hours exceeding 1800 billable hours. What are we doing wrong?
It often takes more than setting up a bonus system and then leaving it on autopilot. I am finding that the intrinsic reward of doing a good job and meeting the expectations of the firm’s partners are as important as the bonus system. In client law firms that have had similar problems we have found that by supplementing the bonus system with monthly reviews and coaching sessions with associates not meeting their targets has made the difference. Here is an outline of the process:
The bonus rewards those that want to push beyond the 1800 billable hours but does nothing to solve the problem of those not meeting the 1800 billable hour expectation.
John W. Olmstead, MBA, Ph.D, CMC
We are a 21 attorney firm in San Francisco. Recently we have been considering overhauling our partner compensation in order to foster leadership and more of a team environment. Currently many of our partners are operating and functioning as if they are in separate law firms rather than part of a firm. What are your thoughts?
With thinner profit margins firms can no longer carry unproductive partners. Law firms are demanding more from their partners and asking everyone to think outside the box to help the firm innovate for the future and obtain/retain a competitive advantage.
This has renewed discussion and debate on the topic of partner compensation and in particular whether compensation can make a difference in motivation, actual performance, and contribution.
We are receiving many more inquiries from firms looking to overhaul and redesign their partner compensation systems. Based upon these inquiries we believe that many firms are expecting miracles from their compensation systems and are asking and expecting more than they will ever be able to accomplish. They are not just seeking to align pay with performance – but have far higher expectations. For example:
Expecting a compensation system to perform miracles such as these may be expecting more than any system can deliver.
Compensation does not drive behavior – it maintains the status quo. It serves as a reinforcing agent. Motivation requires leadership which can have a greater impact upon a firm than anything else.
An effective compensation system serves as a strong messaging and reinforcement agent that helps you obtain and retain top partner talent and helps align their goals and activities with the strategies and goals of the firm.
A well designed compensation system should provide:
While you must get partner compensation right in order to acquire and retain top partner talent as well as reward performance and reinforce desired behaviors, the starting point is hiring and retaining the right people to begin with. Jim Collins in his book Good to Great sums it up well with the following comment: “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.
I believe that the following three pronged approach is needed to strategically manage and motivate partner talent in your firm:
John W. Olmstead, MBA, Ph.D, CMC