How Law Firm Compensation Systems Impede Collaboration
Law firm compensation systems traditionally reward individual effort as opposed to collaborative and team-based behaviors. When a firm’s compensation system doesn’t align with the behaviors it wants to encourage, more often than not, the lawyers will act in accordance with what the compensation system rewards rather than what the firm says it values.
What Most Law Firm Compensation Systems Reward
Most law firm compensation systems were built to reward individual achievement over collaborative efforts, resulting in a system in which the focus is on individual, over firm-wide, profitability. While rewards are large for individual hours billed and new cases or clients brought to a firm, few law firms have any significant component of compensation that rewards collaborative activities, including those that promote the firm and other lawyers within the firm, mentoring, or helping other firm partners land or retain clients.Law firm compensation plans that are based on “eat what you kill,” lockstep programs that reward longevity over performance, and origination credit that outlasts its usefulness and rewards lawyers more for finding clients than for servicing them, are all compensation systems that undermine collaboration and are potentially detrimental to clients.
Law firms that reward partners for hours billed, and measuring partner profitability by a partner’s individual work, rather than the work of their entire team or practice group leads to non-collaborative behaviors. Partners hoard work, which robs less senior lawyers on the team of opportunities to learn and grow, and to bill their own hours. Clients get over-charged for work that could be competently performed by someone at a lower billable rate. Partners spend more time billing hours and less (if any) time mentoring team members.
Compensation Systems that Promote Collaboration
While some law firms have tried to modify their compensation systems to reward more collaborative behaviors, many of these changes have not gone far enough, because they reward inputs, rather than outputs. Similar to rewarding billable hours, rather than billables collected, rewarding inputs such as time spent on collaborative activities, rather than the outcomes achieved as a result, leaves these systems subject to abuse.
Instead, law firms should incorporate outcomes into their compensation systems. For example, measuring and compensating client retention and satisfaction, not just increased revenue and profits from new clients, would go a long way toward signaling the importance of properly serving the firm’s clients and providing a well-rounded client experience, rather than just acquiring clients and not providing them with the service they deserve.
Jordan Furlong at Law21 agrees. He suggests that law firms “Tie a small (but annually rising) percentage of lawyer compensation to the results of client satisfaction surveys conducted during and after a client matter… Incorporate ‘client’s assessment of service and care’ into the lawyer compensation formula,” and says that firms that do so will “be amazed at how quickly you develop a solicitous and service-oriented legal workforce.”
In addition, firms can emphasize collaboration in reviews and compensation discussions, implement a peer review process capture information on collaborations, and reward lawyers who engage in collaborative efforts. Firms can also de-emphasize origination as a main source of partner revenue by allowing shared origination credit, tracking originations by team, rather than individuals, or sunsetting origination credits after a period of time.
Adjusting your firm’s compensation system isn’t the only way to foster collaboration and cross-selling with your firm. Make it easier for your partners to collaborate and to refer work to one another using ioRefer. Our interactive database helps attorneys looking for assistance on a particular project to quickly post and distribute staffing needs notices either within their law firm, and attorneys with extra capacity can search the database for projects they can contribute to.
Instead, law firms should incorporate outcomes into their compensation systems. For example, measuring and compensating client retention and satisfaction, not just increased revenue and profits from new clients, would go a long way toward signaling the importance of properly serving the firm’s clients and providing a well-rounded client experience, rather than just acquiring clients and not providing them with the service they deserve.
Jordan Furlong at Law21 agrees. He suggests that law firms “Tie a small (but annually rising) percentage of lawyer compensation to the results of client satisfaction surveys conducted during and after a client matter… Incorporate ‘client’s assessment of service and care’ into the lawyer compensation formula,” and says that firms that do so will “be amazed at how quickly you develop a solicitous and service-oriented legal workforce.”
In addition, firms can emphasize collaboration in reviews and compensation discussions, implement a peer review process capture information on collaborations, and reward lawyers who engage in collaborative efforts. Firms can also de-emphasize origination as a main source of partner revenue by allowing shared origination credit, tracking originations by team, rather than individuals, or sunsetting origination credits after a period of time.
Adjusting your firm’s compensation system isn’t the only way to foster collaboration and cross-selling with your firm. Make it easier for your partners to collaborate and to refer work to one another using ioRefer. Our interactive database helps attorneys looking for assistance on a particular project to quickly post and distribute staffing needs notices either within their law firm, and attorneys with extra capacity can search the database for projects they can contribute to.
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Posted - 08/31/2020
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