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Practice Management Q&A
Compensating for Practice Group and Team Efforts
November 2005
The most talked about issue in partner compensation systems in law firms today involves how to motivate or incent lawyers to contribute to group and team activities. Almost every medium and large law firm in the U.S. has implemented some form of practice management: They have established practice groups, client teams, industry teams and other structures designed to help manage the practice, position the firm to attract more and better business, enhance morale or take advantage of the benefits offered by a group. However, despite their good intentions, these groups and teams are often not functioning as they should because one key to practice management is ensuring that the compensation system encourages the group’s goals, or at minimum, does not discourage group goals.
While most successful firms have subjective or “total contribution” compensation systems designed to take into consideration numerous factors including teamwork, commitment to the firm, management time and others, these factors are typically not perceived as very important -- except at the margins for exceptionally low or high performers. Whenever we are helping a firm with its practice groups or client teams, we ask firm management what criteria or contributions are perceived to be most important by the partners. Almost all will admit that personal production (billable hours or more likely, dollars produced by personal billable time) and business generation -- primarily on an individual basis -- are the two most important factors and in many firms, everything else pales in comparison.
As a result, in many firms, we see problem behaviors driven by these compensation incentives (and the lack of rewards for group and team activities), such as:
- There is more incentive for a partner to bring in a small low value matter that he will get credit for originating than to help one of his partners expand one of “their” clients, even by many times that amount of business.
- There is more incentive for a partner to bring in a new client than to expand an existing client. In most underperforming firms we are told that new clients are much harder to get than existing clients, and the only marketing that “really counts” is landing new clients, not expanding existing ones.
- There is an incentive for partners to keep their practices close to them, not introduce other lawyers to “their” clients or cross-sell, in order to remain portable and therefore, more valued. In one firm, a partner asked a member of the Compensation Committee why a particular partner had gone up in compensation. The Compensation Committee member replied that the partner’s business was very portable and they had to pay him more to keep him from leaving. Just consider what message that sends other partners in the firm about whether they should jealously guard their clients or should share them with others in the firm.
Before we address how to reward group and team efforts, we should deal with some myths and misperceptions about compensation generally.
First, compensation is not simply a way of dividing the profits. It is one of the most powerful management tools in the firm. While research shows that most lawyers are not primarily motivated by money (contrary to popular opinion), compensation does more than reward lawyers for their contributions. Because there is little hierarchy in law firms and little position power, compensation is often seen as a way the partners are ranked, recognized and their success acknowledged. As any partner who has ever been involved in compensation deliberations knows, the relative ranking is usually much more important than the actual dollars.
Second, it is difficult, if not impossible, to manage a firm if you cannot affect compensation. As a result, many firms recognize this fundamental principle of organizational management and there are very few successful law firms who still have separate compensation and executive/management committees.
Third, if you have an “objective” or formula compensation systems, it is almost impossible to consistently and fairly reward complex behavioral activities (like teamwork, quality, practice group management, lawyer development and client relationship management and sharing) largely because those behaviors do not lend themselves to simple or quantitative measurement. As a result, since these are all critical activities in most firms, objective systems have largely disappeared. There are a few large firms that still have them and virtually no highly successful firms that have them.
Fourth, changing human behavior is very complex. It is not simply a function of the right compensation incentives. You must also recognize the impact of firm culture, leadership and other norms that affect behavior of your lawyers.
With these points in mind, there are some steps you can take to motivate your partners to participate in group and team activities -- whether of practice groups, industry or client teams.
- Look at your process of gathering information in the compensation process. Many firms have partners complete a short questionnaire or prepare a memo about their contributions, particularly those that will not show up in the “numbers” or objective data used by the compensation committee. Many firms also conduct interviews of each partner to elicit information that cannot be obtained through memos or to have a more insightful dialogue with each partner than the information they gather in written forms. With either a questionnaire or interviews, it is important to be cognizant of the messages you send, and the expectations that you encourage. For example, many firms that have implemented practice groups or client teams kept using the same historical questionnaire and/or interview guides that focus entirely on individual contributions. Questions like “what are your personal goals for your practice?” and “what have you personally done to contribute to the firm?” often reinforce the perception that all that matters is individual contributions. Instead, you should be asking questions that support the behaviors you are trying to motivate, such as, “What have you done to help achieve the firm’s goals of …?”, “How have you helped contribute to your practice group?” or “In what ways have you institutionalized your clients -- i.e., introducing others to key contacts, designating ‘deputy’ client managers for segments of the work, etc.?” In one major firm, their strategic plan has three main elements and two core values articulated. Every question in their questionnaire and interview list is based on these. There is no question in that firm that firm management is evaluating and rewarding efforts that contribute to achievement of the firm’s plan. As a result, they have been very successful in achieving their goals.
Another major value of the pre-compensation interviews is in developing and managing expectations and commitments/behaviors of the partners. These pre-compensation interviews are not simply information-gathering sessions. They should be two-way conversations where the parties listen, discuss how the partner’s roles and commitments fit with what the firm needs him or her to do and counsel the partner on what they should be doing and not doing. In some firms, they argue that they cannot have these conversations prior to determining compensation and the “messages” they hope to send because they do not have all of the information yet. But, in fact, if firm management has been doing their job all year and dealing with partner issues and coaching/counseling, they clearly know what the partner’s strengths and areas for improvement are.
- Make sure that you send clear, consistent and effective messages to your partners with your compensation feedback. These themes or messages should be designed to guide the partner toward his highest and best roles for the firm, not to justify or rationalize his compensation. Then, these messages are given in in-person meetings with a chance to explain and discuss them. Often, if a compensation committee does not have to give clear messages as part of the compensation process, you will find that different members of the compensation committee “ranked” a partner the same but for entirely different reasons. Having to give clear messages forces members of the committee to have very important conversations about what the partner should be focusing on in the coming year, and how they can provide the greatest value to the firm (which, in turn, should enable them to earn more compensation). Without this important step that helps the members of the compensation committee “get on the same page” about each partner’s contribution, what often happens is that after the decisions, partners ask one member of the committee why they are where they are and get one answer and ask another member of the committee and get an entirely different answer.
- Make sure that your post-compensation setting messages include feedback from the practice group leaders, office managing partners, client team leaders or others who have had input in the process. For example, if you want these leaders to be taken seriously, the messages need to include comments like, “Your practice group leader said you made a terrific contribution to the group’s training program last year.” But, the compensation committee should not fall victim to the idea of attributing feedback and avoiding taking personal responsibility for making tough decisions, holding people to high standards and generally holding their partners accountable. It is too easy for a compensation committee to avoid endorsing the conveyed idea themselves by attributing feedback to others. The key is that you gather the feedback -- and ensure that the partners know who has input -- and concentrate on ensuring that the message given to the partner is the right message, regardless of who it comes from.
It is most critical that the compensation results and compensation messages are consistent with the firm’s and practices’ goals. For example, when talking with a partner who is a good producer but who hoards all of the work for himself, you should talk with that person well in advance of compensation about what you expect of him (sharing work), with very specific examples of what the desired behaviors looks like. Then, you should talk with him periodically throughout the year about how well he/she is doing (reinforce your message, even to the point of telling him when he is going astray), and then under compensating if the behavior is such that it threatens the long term strategy of the firm. For example, you might even say to him, in the year end compensation process, “gee, you could have earned more if you had done what we told you all year long, but you seem to have ignored that advice.”
Using compensation as the powerful management tool that it can be is not easy. But, it is critical to the future success of law firms. If you follow the advice above, you should not hear comments like the following we have heard in firms who are not doing compensation well:
- “I can’t get members of my group to attend meetings, implement our practice group plan, mentor associates …”
- “After a lot of work setting up a practice group retreat, including hiring outside speakers, planning breakouts, etc., a major rainmaker in our practice group told all the associates that work with him that his work was more important and that what the practice group did not matter. As a result, five associates missed the retreat and firm management rewarded this rainmaker because he had ‘good numbers’ this year -- despite their comments to partners all year that practice group activity is important. What kind of message does that send to our people?”
Without the powerful management tool of compensation working toward the achievement of your firm’s goals, you will not be able to use other powerful motivators that can help move your firm forward.
Susan Raridon Lambreth (srlambreth@hildebrandt.com) and Blane Prescott (brprescott@hildebrandt.com) are directors with Hildebrandt International and each have more than 20 years experience consulting with law firms. Susan is the regular author of this column on practice management and Blane is an expert on compensation systems and approaches in law firms and counsels law firm management about many strategic issues affecting their firm’s success including management structure, strategy, pricing, compensation and more.