Is Your Firms
Compensation Aligned with Your Goals?
by MBA and MBA
firms compensation formula aligned with the firm goals is the best method to ensure
timely completion of the firms objectives. However, if compensation does not reward
the accomplishment of the goals, the lack of a motivating factor will, oftentimes, leave
the goals unfulfilled.
Take, for example, a
law firm whose goal is to increase its number of attorneys. Adding attorneys will result
from an increase in business, which can occur in two ways: through current clients that
require additional services or through new clients. However, the compensation formula for
the law firm only rewards attorneys for the hours that they work, not for their
originations. Consequently, when it comes to growing the firm there is very little
incentive. Instead, the partners spend their time only on billable work, with no regard to
new business, since that is the only way to increase their individual compensation. The
result is that the number of attorneys has remained static. However, once the compensation
formula is changed to reward partners for their originations, suddenly partners are out
generating new business.
that many law firms are rewarding their partners for all the wrong reasons. Some reward
their partners for their seniority in the firm, although the partners may not generate any
business. Law firms who maintain this type of compensation formula have found themselves
in a lot of trouble, especially when the younger partners begin generating business for
which they are not paid.
should be included in the compensation formula. One is the billable hours. Attorneys need
to bill hours and be rewarded for doing so. However, the true reward should be for
collecting the money that is billed. Many law firms compensate attorneys for billable
hours and not collections.
The second important
factor for a firm, whose goal is to grow, is to have a compensation formula that includes
rewards for originations.
The third area of
compensation that is important for growing a firm is delegation. If you have not linked
reward to the objectives of new business development and delegation, then the key
ingredient of motivation is absent and the chances of success are diminished. "What
gets rewarded, gets done."
A fourth compensation
area is for administration work. This includes work done by the managing partner, the
marketing partner or the partner in charge of continuing education. Those types of
responsibilities in a law firm should be rewarded, because it is time spent away from
developing new business and earning revenues.
Take a look at your
firm's objectives and analyze whether or not your compensation formula encourages your
partners to achieve those goals. If we can help you develop a compensation formula, please