Creative Compensation in a Down Economy by Kirby Gamblin Joseph L Friday, Feb. 11, 2011 mor
aw firms frequently struggle with how much is too much or too little when dealing with attorney compensation. Instead of focusing on billable hours or setting salary
based on other intangibles that do not directly impact the rev- enue of the firm, consider a system that rewards the generation of revenue. Focusing on client collections allows the firm to keep up with the salary needs of its attorneys and compensate them for what they are providing to the firm while also increasing the firm’s revenue.
Paying attorneys a certain percentage of their collections motivates them to work hard on casework and to work equally hard to collect for the work they have done. Knowing that the more they work the more money they will make is an incentive to work harder so that they reap the benefits. Compensation structures that do not reward for generating additional revenue can serve as a disincentive because there is no direct benefit to the attorney to work harder than the basic expectations.
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Joseph Law Firm, P.C. recently designed a compensation structure based on collections and other perks for attorneys of the firm. An example of a compensation plan that would take collections into consideration looks something like this: Attorneys are given a set base salary (assume $50,000). If you agree to pay attorneys 33% of their collections, then the attorneys would need to collect $151,515.00 per year as their minimum threshold. (A $50,000 base salary/.33=$151,515 threshold.)
Te employees would continue to earn an additional 33% on every dollar collected above their threshold. (An attorney
FOR FURTHER INFORMATION: u “Making Sense of Staff Compensation” u “How to Shift Law Firms to a Performance-Based Compensation System
u “Law Firms Consider Overhaul of Associate Bonus Structures”
collecting $250,000 would receive his $50,000 base salary plus an additional $32,500, for total yearly compensation of $82,500.)
Firms would be able to keep an attorney motivated and reward longevity by creating a structure that shows a progression over the years. Perhaps newer attorneys receive a lower percentage of collections and increase the percentage of collections they receive year to year. In addition, consider layering additional perks into your plan so that each year attorneys are rewarded with perks they did not have the year before (e.g. discretionary stipend for cell phone, increased health insurance benefits, increased CLE reimbursements, etc.). Tis type of plan takes the stress out of determining annual salary increases and puts attorneys in charge of their own fate.
Of course, if there are things that are important to an attorney’s job, besides collections, you must make sure that these things are part of the attorney’s job description. In order to move from one level of the compensation plan to another, in addition to meeting their threshold for collections, they must also meet their other job duty requirements (e.g. marketing requirements, firm leadership requirements, etc.).
In a down economy, creatively thinking about compensation can increase attorney satisfaction while increasing firm revenue.