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Law Firm Management

More About Compensation Systems

I recently authored an article about law firm compensation systems, lamenting how they are usually laser-focused on billable hours and business brought in, but not so much on all of the other skills required to build a great firm. Of course, there is a great deal of lip service paid to the so called ‘soft factors,’ but the conversion rate of lip service to cash for ‘soft factors’ is not particularly great.

One of my readers followed up with me privately and asked me about how I would construct a good compensation system that addressed the flaws about which I had written. An excellent question, but one that nonetheless initially left me stymied. As I explained to my reader, like so many in our profession, I am much better at criticizing than constructing. However, having lots of time and so few intellectual challenges in retirement, I thought that I would give it a try.

I honestly believe that changing compensation systems is doomed unless there is a real consensus on firm values. If partners do not really want to promote certain values, they will not support a system which does that (and will likely actively sabotage it). And you cannot do it in reverse by changing the compensation system by majority vote and imagining that the compensation system alone will cause all of the lawyers to fall into line to maximize their income. Believe me, I have seen that tried.

Let’s assume that you can get real consensus on values, and that the values include subjective things such as mentoring, supporting each other, training, contributing to a pleasant work environment, having profile in the community and in the profession and substantive knowledge of the law, to name a few.

Within the firm there is a body of knowledge about who does those things well. ‘Everyone’ knows who takes mentoring seriously, who is available to help others, who screams at their assistant and treats the associates like peons, who knows their law cold, etc. That knowledge has to be collected.

The problem, of course, with the so-called ‘soft factors’ is that they are somewhat subjective. Not only are they subjective, but lawyers have been known to be somewhat disingenuous about this type of thing. If Attila the Hun were a lawyer being compensated by reference to ‘soft factors’ he would push and shove his way onto the compensation committee and swear up and down that he was the greatest and most compassionate mentor of all time. And since he would have the largest number of conquered countries of all of the partners, they would fall into line and compensate him accordingly.

So, the challenge is how to make this anecdotal evidence more objective. I suggest that the starting point is to collect the information in an objective manner. Surveys of lawyers and staff conducted by an objective third party may work. I am a great believer in those psychological behavioral testing surveys. You know, the ones that ask you the same question five different ways and get to the actual truth. (As an aside, these tests are not foolproof. I once took one which revealed that I am very romantic. My wife said that I should get retested.)

In any event, I would think that experts can design this type of survey for law firms as well. Independence is key, since firm members are not going to be telling the truth if they think that there is the slightest risk that confidentiality will be breached.

On the assumption that you can ever get the partners of a law firm to whole-heartedly commit to shared values  (and I don’t mean the type of commitment which one gets when the people who are not really buying in decide that it is time to go-along to get-along and survive to fight another day), I think that the next step is to have independent human resource professionals design the system. 

I have used such professionals to design compensation systems for clients, but never for a law firm. (Law firms usually do not need professionals to do this type of thing because the lawyers already know everything and because they are certain that ‘law firms are different.’)  Independent human resource professionals can attach monetary value to the various skills and job roles within the firm, consistent with the desire to achieve the firm’s goal of promoting those values.

Of course, all of this is doomed to fail if it is a virtue signaling exercise instead of a real attempt to support certain values. For example, we had one partner in our firm who thought that all of this ‘soft’ stuff was a crock and was genuinely uncomfortable with doing some of the things that were being encouraged. He worked hard and billed hard. When we designed a system to encourage certain skills that he was not comfortable with, he did the math and decided that not changing his way of working was worth the $20,000 a year ($10,000 after tax) that it was going to cost him, and that in any event he could make most of that back by billing more. So he just ignored it.

The real challenge is not designing the system but developing a firm culture which does not cause the firm to implode when the system is put into effect. Somehow you need to get the firm to the point where the partners genuinely support the goals that you are trying to reward. That point would be when, for example, the great mentors and trainers are celebrated the way we currently celebrate the great business promotors and billers. And, you have to do that in a manner which does not result in sniping and sabotage, or in the departure of the promoters and billers. In addition, those who are not great at some of the skills which are being promoted have to be offered training and support to get better at them.

Finally, the firm has to be willing to accept the risk that they will lose some people.

Getting back to where I started, it is really about firm values and firm culture. The compensation system should be a tool to bolster a set of values which all of the partners want to support. This likely means that it will require a very gradual process where much more effort has to be made at the stage of bringing people in and training them, so gradually the culture changes.

To borrow from the construction industry, building a firm upon a strong foundation of shared values buttressed by a good compensation system will be much easier than trying to renovate an existing firm.

Post-Script by Maria Milanetti, Partner, MarchFifteen Consulting

Murray asked me to review his draft of this article because I do organizational development work which is in the realm of HR, and he knows that I have particular insights into the legal and accounting professions. I have done an assessment with Murray (our writer) as an example.

Although Murray concludes his article by saying that it will be easier to build a new firm using the ideas set out in his article than it would be to implement these ideas in an existing firm, he seems to think that it still may be possible to pull it off in many existing law firms and equivalent organizations. When we were exchanging notes on the article I expressed the thought that he may be thinking of this a bit too idealistically.

In my experience, in organizations set up as law firms there are people who just do not see the value of the so-called ‘soft skills,’ and this may include some of the ‘high billers’ he refers to in the article. Without their buy-in, any change to the firm culture and the compensation system will likely be difficult. It may be necessary for those who believe in these more human qualities, to form their own firm and run it differently. In addition, things like mentorship are valued by some in organizations, but not all as we know.

As well, Murray and I exchanged the view that the formal education of lawyers does not usually include much instruction in human processes. This instruction and its experience in the workplace happen for many business people in banks and larger organizations, so that they learn to better manage the politics and bureaucracy of the workplace.

I shared that I have many lawyer friends and relatives who are socially astute and who do understand and value the place of humanity in business. Such professionals also appreciate the role of formal processes to create a supportive environment for all stakeholders. However, in some professional organizations there seems to be less recognition of these interpersonal processes than in other business environments, and less importance attached to the idea that ‘what goes around comes around.’

In conclusion, what I love about Murray and his articles is that he is willing to push the envelope and take on the difficult topics that may make the workplace better in the longer run, in both law firms and other organizations like them.

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