Most law firms use a bonus system to motivate and retain good attorneys. Traditionally, law firms have based their bonus models solely on economic contributions. Law firms are now seeking a more progressive bonus model design since the traditional quantitative model is failing to motivate attorneys to reach their revenue goals, and turnover rates are higher than ever. Many law firms have found success using a qualitative bonus model that focuses on professional growth milestones.
What is the best way to structure your firm's bonus model to help bring out the best in your team and reach your firm's strategic goals?
This article will review the traditional quantitative approach and a more progressive qualitative approach to developing an effective law firm bonus model.
A quantitative approach
Firm leaders create bonus structures with the intent to encourage high levels of production. The traditional quantitative approach focuses on economic contributions such as billable hours, collections, and profitability in determining bonuses.
From the surface level, this quantitative model seems like an ideal strategy; it is one in which bonuses are directly tied to financial outcomes. And while quantitative bonus models do, in fact, set high-performance goals for attorney achievement, they don't paint the full performance picture.
Dilemmas of a Quantitative Bonus Model
Using a quantitive bonus model that relies exclusively on economic factors to determine bonuses can counterproductively impact your firm's culture and, ultimately, your bottom line.
A quantitative bonus model can catalyze a host of adverse effects, including:
- Promoting a culture of exclusion and individualism
- Employee burnout and high turnover
- Low Morale and compromised organizational ethics
Promoting a culture of exclusion and individualism
When bonus compensation is tied solely to individual economic contributions, firms risk the deterioration of their cultural environments. The quantitative bonus method strictly focuses on the individual attorney's performance. This could cause attorneys to become absorbed in self-interest at the expense of work efficiency. It incentivizes attorneys to take on as many matters as possible, even if it would be more efficient for the firm to assign a matter to someone else.
Employee burnout and high turnover
Having such a focus on individual performance may even restrain commitment to developing younger attorneys and staff, threatening workload distribution. Unbalanced workloads cause high stress at every level. Some may experience stress from having too much work to manage, while others may experience stress from not getting enough work to hit targets.
Such negative impacts contribute to burnout and, as a result, high, costly turnover. Having an economically driven bonus model can cause attorneys to feel as if they are participating in a never-ending race with a finish line that moves further and further away.
Human beings can only remain in a state of high utilization for a short time before they become too emotionally and mentally exhausted to perform. When this happens, diminishing satisfaction for monetary compensation sets in, and the economically tied bonus loses its motivating effect. Instead, it has a discouraging effect that impedes productivity and may lead to resignation.
The cost of sourcing, recruiting, onboarding, and training a new employee can be quite significant and offset the profitability goals of many law firms.
Low Morale and compromised organizational ethics
Lastly, another potential adverse effect that causes significant concern under a quantitative model is low morale and compromised ethics. When monetary compensation structures are contingent upon racking up enough revenue to climb the rungs of achievement, the structures are known to evoke irrational, counterintuitive behaviors among employees. It could influence dishonesty in billing practices, inefficiencies in client service, and poor choices in interactions with coworkers. This could impact the firm's reputation and brand, which, you guessed it, leads to a reduction in earning potential and the bottom line.
A more qualitative approach
Firms should shift away from a solely quantitative bonus model and move towards a qualitative bonus model. We are not suggesting that firms disregard productivity when the distribution of bonuses is being considered. Instead, firms should rethink how productivity is achieved and all the factors that employees exhibit to succeed.
A more progressive practice to approach the distribution of bonus compensation is to connect the bonus to a qualitative evaluation. A qualitative bonus model rewards employees for their contributions to the firm while reinforcing the qualities the firm values most. It goes beyond economic reports and considers strategic contributions that have a positive, long-term impact on the firm's financial and operational performance.
Benefits of a Qualitative Bonus Model
The main benefits of a qualitative bonus model include:
- Supports profitability, cost control, and quality assurance initiatives
- Establishes guidelines for clear performance expectations
- Ties performance accountability to measurable goals and aids in the evaluation process
- Incentivizes employees to meet performance expectations and goals while supporting organizational goals
- Brings transparency to the process, giving employees an improved sense of self-efficacy/personal competence
How does a qualitative bonus model work?
The qualitative bonus model works by increasing productivity, thus stimulating high performance. High performance happens when motivation meets ability. The qualitative bonus model is designed to enhance motivation and ability by rewarding the strategically selected behaviors and skills your firm wants to reinforce.
Focusing on these selected behaviors and skills, a qualitative bonus model will also help the firm track and meet high-level objectives that include:
- specific legal skills,
- case and client management,
- business development, and
- managerial and cultural contributions.
Once the firm has identified skills and behaviors to reinforce, leaders should share the evaluation components of the bonus model with those who will be assessed. This helps attorneys direct their attention and energy in the correct direction and empowers them to self-assess their performance.
Choosing the right skills to reinforce.
Rewarding professional growth is important since a firm's performance improves as its attorneys' skill sets develop. To reward attorney performance, a firm should analyze the attorney's analytical ability, problem-solving skills, interpersonal skills, and technical knowledge, in addition to revenue generation.
When a firm rewards professional progress, it sends the message to its attorneys that it values personal improvement. Attorneys are motivated to focus on developing their skill set while showcasing their abilities as the highest functioning version of themselves. This enhances productivity in a positive way that makes buy-in easy.
After setting professional growth targets, a firm should not ignore them until evaluation time come around. A firm needs to put in the work to foster an environment that is conducive to attorney development. Processes should be implemented, and resources should be made available to help attorneys stay on track and focused on developing their skills.
Performlaw's Attorney Relationship Management System (ARMS) is a comprehensive organizational development system designed to enhance firm performance by building strong attorneys with special attention to cultural and structural components.
Drawing from our experience in working with law firms, the consultants at Performlaw have developed qualitative bonus models as a part of ARMS. Included in the system are the fundamental components for evaluation that can be crafted to be specific to your firm and align with your firm’s unique strategic plan.
Please review one simple model in our resources section (link: Subjective Bonus Calculator).
Along with bonus models, the ARMS system includes a training and development plan, career progression criteria, and a semi-annual performance evaluation. All are designed to optimize attorney performance by reinforcing the objectives set by the firm.
MORE HELPFUL POSTS:
- Determining Attorney Bonuses: Subjective and Objective Considerations
- Setting and Adjust Attorney Base Salaries
Contact Performlaw to get the help you need to build a bonus model and a complete system that will bring out the best in your team while helping you reach your strategic goals.