Compensation, Motivation, and the Social Contract

 Are compensation and motivation synonymous? Not exactly. “Motivation” is an umbrella term that includes compensation and non-monetary incentives such as fringe benefits, less commuting time to the office, time off, and the “street reputation” of the office.

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The Social Contract and the Client

A law firm is a demanding place to work. The people who work in law firms are smart and embrace this environment, in part, because it is a demanding place to work. I believe that the “social contract” between the firm and the employees is: “A higher level of compensation may be expected in exchange for a higher level of performance to best meet the demands of the practice of law.”

The street reputation of the office (and attorneys) mentioned above refers to how the office is perceived by vendors and staff. Does the office pay its bills on time? Are documents always ready for the messenger service? Is the staff hearing verbal praise from the attorneys when merited? Are mistakes by the staff or attorneys counseled privately and in a civil fashion? Is attorney displeasure with a situation channeled appropriately? A positive street reputation contributes to high morale, better performance and reduced turnover.

In a law firm, compensation is paid not based on hours worked or billed. Compensation is paid based on what the clients pay in terms of the fees charged. Without fees paid by clients, no one gets paid. And clients pay attorney fees when they believe they have realized value. Examine your firm’s outstanding accounts owed (accounts receivable) and frankly assess the circumstances of each representation. Could the firm in certain instances have done a better job keeping the clients informed or have been more efficient? What was the value proposition for these non-paying clients?

Everyone in the law firm plays a role in delivering this perceived value proposition. Because, at the conclusion of the matter, clients often forget much of what was said or done, but they always remember how they felt about the representation. In your firm, if certain individuals usually do not speak up and contribute at staff meetings, I believe they are not adequately doing their jobs. The social contract of higher compensation in return for higher performance supports both the expectation of the client and improved performance of everyone in the firm.

Paying the Staff

Staff salaries will vary based on geographical location. The wages of staff should start at 200 percent of the federal minimum wage, or a similar factor if your state or local minimum wage is above the federal minimum wage. Experience and special skills will drive that wage higher over time. In most instances, staff is paid on a non-exempt basis. Non-exempt means they are paid for overtime at a higher rate per hour. See here for more information about overtime pay.

Staff should be aware that the financial success of the firm determines whether a raise may be possible. If a raise is not possible, staff usually accepts this fact and will remain with the firm. Staff may even remain with the firm several years without seeing a raise, due to non-monetary factors and loyalty to the supervising attorney(s). Beware of continuing raises for attorneys in the absence of raises for the staff.

A staff bonus structure can be based on wages, longevity, productivity or all three. I also recommend a separate modest payment based on the staff person’s anniversary of employment. Rewarding staff loyalty to the firm is an important concept and helps to reduce turnover. And while staff may not share in the legal fees collected, staff may be compensated with both wages and a with bonus structure.

Check with the Association of Legal Administrators (ALA) about its national compensation survey and whether the local chapter of ALA publishes a salary survey. And do not overlook the book 1501 Ways to Reward Employees by Bob Nelson. This book helps to expand how to think about compensation.

Paying the Attorneys

Arguably, all the attorneys in the law firm should be paid based on fees collected—not based on salary. This assertion is contrary to the concept of leverage, where equity partner compensation benefits from fixed associate salaries. All of the attorneys should have the incentive to attract the clients. It is the attorneys who decide which clients to accept. Attorney compensation should be based on the generation of paying clients. This approach implies having a suitable time and billing software application to keep track of each new matter by originator, biller and responsible attorney.

This incentive compensation basis implies that the attorneys who are the better attractors of new paying work must spend time with the other attorneys discussing their ideas about business development, client service and rainmaking. Retired partners also can return to the firm periodically to share their wisdom about business development. Another goal is to respond to the desire of a successful entrepreneurial attorney to leave the firm to set up shop in competition with your firm because of a desire for a larger “piece of the pie.” I recognize that larger firms sometimes employ “staff attorneys” who are not on a partnership track and are paid a salary only.

Paying the Partners

Partner compensation should follow a similar incentive based on attracting paying clients. I consider partners who are the rainmakers to be special situations, where firm history, firm culture, and local conditions constitute that partner’s theory of compensation.  I recommend that each partner be provided with a voluntary, confidential opportunity to assign a compensation level to each partner, including him or herself. It is also a good idea for the firm to budget and set aside a partner bonus pool to enable discretionary recognition of particular qualitative and/or quantitative accomplishments.

Paying of the Counsel

Attorneys who are of counsel to the firm are compensated based on a separate formula described in the of counsel agreement. That agreement may include incentives based on achieving certain goals.

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Bad Times

If economic conditions prevent offering raises or is leading to lay-offs, I recommend being transparent about the financial challenges the firm faces, and doing so with sufficient notice. Now is the time, before the challenges arise, to describe and ensure that everyone understands the economics of your law firm, both in terms of revenue and overhead costs.

Your credibility is itself a motivator, and hard times can be an opportunity to pull together. Attorneys and staff will better understand what hard times are about when they have an understanding of law firm economics. Those who remain with the firm will better appreciate having a place to work and do their utmost to assist the firm through temporary bad times.

If you become the example of above-average performance, those around you will see the performance that you have every right to expect from them because, 1) You pay above the average wage scale, 2) A law firm is a privileged place to work, and 3) Clients expect a value proposition. That is the social contract between the firm and its employees.

About the Author

RobertsPeter Roberts is a private practice management consultant for lawyers. He is the former practice management advisor in the Law Office Management Assistance Program (LOMAP) of the Washington State Bar Association and is the chairman of the Law Firm Finance Interest Group of the ABA Law Practice Division.  He can be reached at pete@practicelawadvisor.com

(Image Credit: ShutterStock)

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