Welcome back for Round 2 of our March Madness discussion. Since we’ve decided a new allocation and partner compensation model might make good sense for your law practice, let’s look at what’s involved in creating a better structure.
It’s interesting that you can use standardized techniques to build a model that’s highly customizable to match the parameters you want to adopt at your firm. Here’s a good representative example of an evaluation grid based on pre-determined success criteria.
As a template, the grid is fairly standard; the customization part comes from your firm finalizing the specific objectives and metrics it wants to use for performance evaluations, and the relative “weight” it will assign to each of those elements.
Often, the most difficult and rigorous part of the process is deciding what the firm will value, and how it should be measured. Subjective assessment topics will fit on the grid easily, once you clarify how they’ll be handled. Even quantifiable items can be tricky sometimes. For example, selecting “originations” as a meaningful metric leads to a number of questions:
- Are we counting originations on matters or clients?
- Are we tracking hours, billings, collections or margins?
- How long will we grant credit on past originations?
- What’s the calculation for split originations?
As you establish the framework for this grid, you’ll begin to realize it’s also a valuable tool for assessing alternative compensation plans. Change the relative weights and see how the numbers shift. Plug in real data from previous years to use as a baseline or to validate assumptions you’ve made. How does the model look now, and what do you need to modify?
It all takes thoughtful effort, and the entire process is very iterative; but finalizing those details gives you the foundation for a system to compare and rank the contributions of people … relative to the standards and goals your firm has adopted, and relative to one another.
Once the criteria are set, it’s a simple step to plug in the numbers and quantify results in a standardized way. This sample lets you quickly identify those who contribute the most value to the firm, determine strengths to acknowledge and leverage, and spot areas that need improved performance.
Regardless of the decisions you make throughout this process, it’s imperative to educate the key partners on the planned changes before everything is finalized. Although it may be difficult to refute the logic of having an objective and well-defined compensation model that encourages the right activity and supports the strategic plans of the firm, the details are always important, and so are your people.
You’ll want to explain how the new criteria were chosen, how individual elements support goals and objectives, and why the change will be a beneficial step for the partners, the firm and its clients.
Obviously, redefining a law firm’s compensation system is not a small undertaking. But, if it’s done in the right way and for the right reasons, you may be able to stop some of the counterproductive madness that seems to occur every March.