Compensation Strategies Designed to Attract and Retain Top Performers

by Joel A. Rose
 

In the selection of a compensation system, it is imperative to acknowledge and reward those whose performance is meritorious.

As the economy continues to improve in the markets in which most law firms practice, if performance is not adequately recognized and rewarded, it is more likely that top performers and those who are evidencing promise to be top performers will seek an alternative or be lured away.

A difficult hurdle to overcome is obtaining the approval of the firm to a compensation system which, to some extent, is incentive driven. There is a substantially growing body of literature, based on firm’s experiences, which recommends a departure from compensation systems which utilize non-performance based criteria to determine worth.

If unanimity is required to effectuate a compensation system, it may be impossible to achieve the objection of those partners who are traditionally less than stalwart performers. At the same time, a decision has to be reached as to: (1) reasonable levels of compensation for other than top performers if they are deemed important/necessary to the firm’s ability to perform required services, and (2) whether, in the event that partners are historically marginal/poor performers in important areas, consideration should be given to de-equitization or separation. They will unquestionably be vocal and argumentative and elicit support from others who fear for their own security, but if appropriate measures are not taken, the firm may be left with them and the top performers gone.

Firms have utilized various formula-based compensation systems, that identify specific bases upon which partners will be rewarded.  The most frequently identified criteria include:

  1. New business origination;
  2. Business retention of valued productive clients
    [Most commonly, both a. and b. above are measured by collected billable hours, rather than billable hours];
  3. Partner and associate utilization, measured again by collected billable hours, of those partners and associates;
  4. Legal abilities, reputation, diligence, timeliness of work;
  5. Efforts made to market the firm;
  6. Mentoring and training of younger members of the firm;
  7. Firm loyalty and compliance with firm policies and initiatives;
  8. Contributions to firm management and administrative duties;
  9. Community and bar association activities;
  10. Noteworthy accomplishments within the period of evaluation;
  11. Pro-bono time spent pursuant to and in accordance with firm policy;
  12. Seniority

Some firms have attempted to be very restrictive and have limited their assessment to quantifiable items listed above, eliminating the subjective analysis required for others. Partners will unlikely in such scenarios be willing to accommodate time for factors which are important but not numerically quantifiable.

Firms with a confidence in their ability to fairly evaluate a partner’s performance, but with an absolute determination to reward performance (and notably diminish the importance of items which are not in and of themselves financially productive, i.e., seniority), will undoubtedly achieve a desired result.

Origination 

Retaining rainmakers are often the source of greatest concern, since they are the most likely partners to be sought after by competitors.

A major source of debate arises with regard to (1) the permanence or “phasing” out of origination or work from a new client and (2) the circumstances for sharing of origination credit to partners for proliferating work from existing clients, managing work originated by others, etc.

(1)       Permanence/Phasing- Out of Origination

In many firms origination credit remains with the partner who brought the client through the door for as long as that partner and that client remain with the firm.  Other firms have opted for “phased origination”, i.e., after a defined period of time, the origination credit diminishes and ultimately disappears, which maintains the case for large credit to be given to “new” origination.

Once credit disappears, if in fact “phased origination: is utilized, it may simply become a “firm origination” and most benefit for compensation purposes is derived by the lawyer responsible for the retention of the client on an ongoing basis. This motivates partners to continue marketing and servicing existing clients, generally considered to be the greatest potential source of new work, while simultaneously pursuing new origination.

(2)       Sharing Credit for New Matters from a Client Originated by another Partner

a.         Client maintenance:  The partner(s) who retains the client; i.e., maintaining active contact between the client, aiding in the development of new business from that client; maintaining a personal/professional relationship with the client; dealing with any potential or actual problems during the processing of legal work or the collection of fees; insuring status and other reporting to the client; etc.

b.         Matter proliferation:  A category complimentary to origination credit is allocated to partners who cross-sell the firm’s expertise to an existing client. Or, who receives a client assignment directly from an existing client originated by another attorney.

c.         Responsible partner:  The partner, other than the partner(s) who receives origination/maintenance/matter proliferation credit, who is responsible for managing the performance of client work in a high quality, timely and cost-effective manner.

In many cases, originating lawyers simply turn over the client to partners with the expertise and capacity to do the work needed for the client, with the originator maintaining a personal relationship. In such instances, the partner to whom the client has been referred assumes principle responsibility for the collected billable hours and expects to be rewarded accordingly.

Some firms have adopted a formula which, after the first few years of the assigned partner’s accepting partner responsibility for the client’s work and production, gives to that partner a significant percentage, increasing over time, of the origination credit.

Delegation of Work

Appropriate recognition of origination credit will more likely lead to a greater willingness to delegate work and encourage greater efforts at new origination, rather than motivating the originator to hoard his or her work to achieve maximal collected hours. It is likely that their greatest value is in the origination of legal work.

Rainmakers will also be suitably rewarded by the delegation of work, if the billable hours are collected, since it will take full advantage of leverage, likely at lesser billable rates, and directly fulfill a number of other compensation criteria, i.e., partner and associate utilization, monitoring and training younger members of the firm and compliance with firm policies and initiatives.

Other Contributions

Top performers certainly must include excellent lawyers whose skills extend into areas other than origination.

Properly mentoring younger partners and associates will clearly identify whether their skills, in defined criteria excel; if so, they should be trained and encouraged to provide leadership in those areas.

As with all areas of management, there must be regular and frequently follow-up on progress made, since it will be understood that success will rebound to the partner’s financial benefit (and likewise to the partner’s detriment) if the effort is less than enthusiastic.

Management responsibilities must be given appropriate credit. It is well for the firm to budget management hours for specific tasks so as to be able to assess the time which it intends to contribute to management, both by task and holistically and assess the effectiveness of the administration of the functions assigned.

Each position within management should, at the outset of each year, identify specific goals and objectives which are acceptable to that lawyer’s management “supervisor”, i.e., managing partner, Executive Committee, other committees, and be judged qualitatively on the performance of their managerial functions and other contributions to the firm at the end of the year for compensation purposes.

The goal is to create leadership and incentivized compensation (with a non-concomitant willingness to very substantially reduce compensation of or eliminate partners who do not perform well over an extended period of time, despite negative reviews) which adequately rewards committed and creative lawyers. This will undoubtedly cause top performers to want to stay.

Communication about Compensation

Firms should consider, in the establishment of a compensation plan, the wisdom of providing each partner the opportunity to discuss his or her proposed compensation, with the Executive Committee, after the proposal has been distributed to all partners.  It is a potential disincentivization for a partner to have no chance to address his or her disagreement with the assessment made of his or her contribution. These discussions, held within a predetermined conference, should precede finality of the compensation plan.

©1999-2015 Joel A. Rose & Associates