Tips for Motivating Partners to Attract Business, Delegate Work and Manage the Firmby Joel A. Rose
A partner compensation system should reward partners for their total contribution to the firm and serve as a management tool to motivate them to perform those fee producing and non-billable activities to progress the firm.
However, when creating or revising (and administering) a compensation system or components of the system, be cautious about what partners will be motivated to do. Understandably, the emphasis of the compensation system, and its administration, will ultimately determine the direction and culture the firm will take. For example, do we want to encourage, i.e., business production, new business, hours, delegation to others, management, a combination, etc.
The result of strategic planning studies undertaken for numerous law firms, it is a generally accepted fact that lawyer management will not be successful moving the firm in a particular direction unless the compensation system goes in that direction too. Also, tensions among partners develop, when lawyer management only pays “lip service” to articulated compensation criteria designed to establish the firm’s direction and reinforce its culture. Sources of such conflict resulting from conflicting values when compensating partners for: delegation of work vs. revenue form personal working hours; origination credit for joint business development vs. individual origination; credit given for consequential non-billable time vs. time devoted to producing client work, etc.
Origination of Business:
In today’s business climate, the firm that does not recognize client origination, one way or another, will probably not prosper and may not even survive.
Business origination from new clients is of major importance when setting partner compensation. However, there must be adequate recognition for the retention and expansion of existing client relationships. Recognizing the importance of origination of new business, even if that attorney does not perform the work, encourages attorneys to participate in business development activities and discourages hoarding of files.
A critical issue to be decided, when allocating origination credit, is whether it will be permanent or for a defined duration.
Permanent origination credit is easy to understand and lasts as long as the client or the originating attorney remains with the firm. If the originating lawyer retires or leaves the firm, origination may become a “firm client,” with no individual attribution, or may be reassigned to the lawyer(s) most closely identified with the client, thereby providing incentive to the lawyer(s) responsible for the client relationship. If there is a subjective compensation system in place, new business and retention of signficant clients may achieve comparable importance as long as the attorney’s efforts are apparent and consistent with the firm’s goals and objectives.
Origination credit for a defined period of time only, which requires “rainmakers” to develop new clients, i.e., five or seven years for total fees. At some point, new business credit may cease for a given client (then that client becomes a “firm” client), but not cross-selling credit.
Shared origination credit, which gives credit to attorneys as the result of their marketing efforts, acknowledges the importance of their value to the client initially or to the recognition of their immediate assumption of client responsibility to retain and enhance the volume of profitable business from that client. This becomes especially significant in order to assure that lawyers will not ignore clients originated by others while they pursue new origination.
Implementating a system for allocating business origination credit will require a tracking system that tracks new business developed by each attorney. Typically, such a system includes information called for on the new file opening form. Also, to limit any misunderstanding between and among partners, it is suggested that the firm define criteria as to what constitutes a new client.
Client information regarding new business files should be published so all attorneys may periodically review the list of clients for which new business credit is being given. Further, the tracking system should track all cross-selling credits. This credit should be allocated whenever an attorney develops new work from an existing client since this is probably the best source of additional business for the firm.
It is recommended that credit for cross-selling business be equal to that for new business. Further, when administering the tracking system, it is recommended that partners be generous in determining what is “new” business, to keep the partners’ level of interest in business origination high. However, be cautious that attorneys do not “play games” with the system.
How to allocate credit for new business/cross-selling will depend upon whether your firm has a formulaic compensation system or a subjective system. With a formulaic system, the percentage should be sufficient to provide an incentive to develop business, but not so much that there is no incentive for others to work on the files.
If a subjective system, be sure the results make clear that significant credit is being given for business development. In either case, a compromise will have to be reached between the client producers and the work producers.
Billing and Collections:
The compensation system must make abundantly clear the importance of billing and collections.
Compensation systems that reward billable hours billed and collected will likely lead to the increased delegation of work. If origination credit or client satisfaction are measures of value for compensation, delegation will more likely fulfill both criteria.
It has been our experience that the collection of billed hours is a far more significant measure of productivity, since billable hours alone will not benefit the economics of the firm and, if used as a paramount standard of worth, will less likely lead to delegation unless more working time is not possible/practical.
Although partners in most firms recognize the importance of delegating work to others, such delegation will only take place if the proposed delegator has: (1) more than enough work to do; (2) more important/profitable work that can be provided to him/her; (3) other responsibilities which require that others do the work; (4) if the work in question should, for the economic efficiency of the client, be done by others; or (5) if the work in question falls within a defined area of concentration which necessitates its transfer.
If billable hours are a substantial measure of performance, delegation is less likely to occur, except when more working time is just not possible/practical. If billable hours billed and collected are utilized, it is a fairer and more significant basis for reward and is probably more likely to lead to delegation. Lawyers will have a difficult time collecting for work which should/could have been performed less expensively and more expeditiously by lower paid attorneys who are competent to perform the work and/or those attorneys who possess greater expertise in that substantive practice of the law. Therefore, if origination credit or client satisfaction are measures of value for compensation, delegation will more likely fulfill both criteria.
It is suggested that guidelines be established to assure that work is assigned within the area of law required and departmental/firm supervision is needed for compliance. If origination credit is involved, and is properly rewarded, the partner will be less likely to abide by the “eat what you kill” principle.
Management matters, whether as to the firm generally, practice areas or other defined responsibilities, should be given credit.
Management hours for specific tasks, i.e., managing partner, department chair, etc., so as to be able to identify quantitative and qualitative goals by which management performance may be measured. Also, if the management task assigned and ultimately evaluated results in heightened efficiency, cultural betterment and/or increased profitability, the firm should consider rewarding the responsible partner(s) with incentivized compensation.
Since high quality leadership cannot as easily be replaced as retained, the firm must be prepared to deal with rewards for success. To the extent that it does not do so, and proposes nonetheless to retain its leadership, current management will be dis-incentivized to continue its efforts, since meeting other criteria of the compensation plan will undoubtedly lead to more dollars for others.
Time devoted by lawyer management is frequently acknowledged by (1) reducing the targeted billable hour goals for managers, i.e., lawyers with heavy management responsibilities should be given lower billable hour goals without worrying about taking a compensation hit, and (2) paying a fixed stipend for certain management roles. Some firms, rather than adjusting work goals, assign a fixed sum for certain management work, such as $25,000, $40,000, etc. for service as the managing partner, member of the executive committee and/or head of a practice area.
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