It’s March Madness time, which means something different if you’re a law firm manager looking for the “right way” to allocate profits and finalize partner compensation for the year. During this annual event, I often get asked to help a firm tweak its compensation system a bit, or run the numbers again looking for a way to improve accuracy. Any attempt to strengthen an underlying model by analyzing the data that feed into it is a usually a worthwhile effort.
The situation is different, however, when I’m asked to help validate a compensation system that skews toward short term individual attorney windfalls instead of rewarding actions that drive long term success. An analysis done under those conditions will come back with contradictory results, and likely encounter a firm’s natural hesitancy to change based on historic precedent and partner expectations.
When clients ask for help, my first task is always figuring out their orientation. Are they stuck with an out-of-date compensation model that encourages less than ideal behavior? Are they more focused on the realities of the current marketplace? Or, are they somewhere in between? The answer reveals itself when clients address four key data points:
- What the firm values and how they measure success
- How the firm has compensated its partners previously
- Any correlations between past compensation and stated goals for the firm
- How the firm’s current value structure and future strategic vision complement each other
If these elements come back with positive alignments and relationships, then the “help” clients need is usually small tweaks to the process and system currently in place. If there’s a big disconnect, then there’s also a flaw in the current compensation model that should be addressed.
It’s probably time to roll up your sleeves and figure out a better allocation model … one that allows you to use compensation and bonus incentives to support the right kinds of actions, behaviors and overall goals of the firm.
We’ll take a look at some of the ways you can start that process, and drop in a few examples to reinforce the points, when we close off this topic in Round 2 of the March Madness discussion. Stop back in a couple of days.