Law Firm Compensation Models & Alternative Billing/Fees

Transcription

1 Law Firm Compensation Models & Alternative Billing/Fees David Cruickshank 1

2 Exploring Compensation Changes Hello, Today s Session Compensation decisions, strategy Types of systems Disruptions and changes Performance Factors and weighting Navigating Alternative Fees, disruptions 2

3 Sequence for Compensation Changes Ready for this? Vision Strategy Align compensation Execute and stabilize 3

4 The Most Important Decisions 1. Our strategic objectives? 2. What individual partner behaviors and performance will we reward? 3. What collaborative behavior will we reward? 4. What measurements? 4

5 The Most Important Decisions Measure Quantitative and Qualitative Performance Strategy Collaboration (Rewards) Individual Partner Performance (Rewards) 5

6 Compensation Spectrum Originations, billings Lockstep and plateau Individual efforts, rewards High ratio from least paid to most More partners, less leverage Revenue more important Predictable progression High standard for partnership entry Strong leverage Institutional clients Collaboration expected Profitability important 2/27/18 International. Permission required to 6

7 Compensation Spectrum Closed Open Prospective Retrospective 2/27/18 International. Permission required to 7

8 The Compensation System Middle Blend of factors Modified lockstep Individual efforts mixed with firm investment No step guaranteed Can still have high ratio from least paid to most Fair process and trust required Predictable progression Steps may have entry qualifications Bonus pool for top performance Origination is rewarded Collaboration expected Rainmakers and service 2/27/18 International. Permission required to 8

9 Who to Consider? Most partners CLIENTS Step Down Partners Internally promoted partners Incoming Laterals 9

10 What makes a lasting compensation system? Aligned with strategy + Affirms the culture + Clear criteria + Transparency + Discipline in keeping measurements + Consistent application + Accepted annual process + Competitive externally + Stability over time = Credible, Lasting Compensation System 10

11 Your Partnership? Originations, billings and blend of factors Open (transparent) or closed? Firm investment time Retrospective (How far back?) Other features, like collaboration, bonus level? Has lateral hiring influenced changes? 11

12 Common Problems Strategy aligned? Does compensation drive culture? Weak measures Consistent application? 12

13 Disruptions in the U.S. Market Laterals Performance Period Low High Ratios Alternative Fees 13

14 Alternative Fee Disruption Why? Recession Unbundling Contract legal services Corp Counsel savvy What? Fee guidelines LPM awareness, training fixed fees Fees with risk sharing Beyond discounting 14

15 Alternative Fee Arrangements Communications Low Risk Client High Firm TM Patrick Johansen 15

16 Dealing with Performance Factors Acknowledge all factors that go into the decisions; write them down Distinguish objective from subjective factors Goal is to have guided discretion for the subjective components. (Examples: merit factors; weighted factors; balanced scorecards). Not essential to have numerical weight for each factor (Formula or not?) Self-evaluation, upward reviews, peer reviews and financial performance are considered. 16

17 Factors to Review Quantitative Performance Individual Collaborative Quantitative Origination RFP and pitch origination Worked hours Delegated, managed hours Convert client to continuous client Cross group delegations Revenue and profit Seniority Practice Group profit Transition clients near retirement 17

18 Factors to Review Qualitative Performance Qualitative firm investment, with data support Individual Client relations Committee service Community and Bar Service Reputation building (Expertise) New business development Training and mentoring Innovation and knowledge contributions: process, pricing, efficiency, LPM, KM Collaborative Client team work Team service Group or team reputation building Team business development (RFP teams) Multi partner training; mentoring laterals Advancing group innovation, group efficiency results, Practice Group LPM 18

19 How to weigh factors? Formula Pros? Cons? Guided assessment 19

20 Base and Reward Systems Base PLUS Rewards Working Partner Senior Mid career Junior Production Existing clients New work Above minimum Hours, revenue, profit Good for specialist Maintain profitability Relationship building and cross-selling Existing clients New clients 20

21 Option: Modified Lockstep with Gateways and Limited Ranges Gateways $ $ $ $ $ Entry Level Step Down 21

22 Option: Modified Lockstep with Seniority Progression and Merit Pool Merit Pool Entry Level Step Down 22

23 Option A Balanced Scorecard Needed to complete: state components of each (quantitative and qualitative) measurements for each weight of 5 areas and (optional) weight within each method of ranking partners in each area Financial Management 50% People and Groups 10% Firm Building 10%* Business Development 15% Client Relationships 15% *Firm building = expertise, leadership, increasing value 23

24 How should I navigate in my compensation system? 24

25 Beyond Your Numbers 1. Ask about performance, not the target number. 2. Seek positive peer examples. Seek a mentor. 3. Be able to describe links between client success, firm strategy and your performance. 4. Become a client matter budget pro. 5. Keep performance metrics monthly. 6. Convert your factual performance into a strong selfevaluation. 7. Write next year goals and a business plan with concrete, aligned performances. 25

26 Your Non-economic Metrics Billing Entries 1. Draft motion documents 2. Draft motion to strike 2 plaintiffs in ABC vs. OurCorp 3. Draft motion to strike 2 plaintiffs - advance client s isolation strategy in ABC vs. OurCorp Firm Investment Time Entries 1. Business development lunch with law school contact. 2. Lunch meeting with Jen Coe, Assist GC at StartCo 3. Lunch meet with Jen Coe (CRM). Shared our new legal strategies relevant to her ** matters 26

27 Better Performance Metrics Goal 1. Improve profitability in capped fee matters. 2. Build my contacts in the financial services industry r-performance-and-compensation/ Measurement, Evidence 1. Created and monitored budgets and LPM in 6 matters; improved YoY profit by average of 20%. 2A. Established 15 new contacts across 8 companies (CRM all face-to-face). 2B. Brought capital markets and litigation partners into 6 meetings with Fin. Services prospects. 27

28 Annual Compensation Process Busines s Plan Self Evaluation, Goals Interview: focus on year ahead Strategy Practice Group Leader Check Committee review and set partner goals 28

29 Compensation Stability Requires Rules 1. We review the firm s existing rules about things like timely billing, write-offs and origination credits. 2. We recommend rules that will promote stability over time. 3. We often suggest reductions in volatility through devices like look-back periods and a three-year moratorium on compensation system changes. 4. We examine how you enforce the rules and improve communications. 5. We suggest annual process improvements. 29

30 Impact of AFA s on Compensation 1. Measurements for hourly-based matters do not fit AFA s that prize efficiency, budget management, value and leveraging (right side of the continuum). 2. Team metrics will become more important in measuring success on AFA s. The Linklaters example /linklaters-partner-targets-global-strategic-review/) 30

31 Thank you! David Cruickshank Phone: Reproduction of all or individual slides of the presentation are permitted, provided proper attribution to Edge International is made. Reproduction of individual charts or displays created by Edge is not permitted. 31