Best Practice: How to tie bonuses to performance

Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am a partner in a 14 attorney firm in San Francisco and I serve on our associate compensation committee. Presently, associate compensation is based on a salary and discretionary bonus. I would like to see a stronger tie to performance. I would appreciate your thoughts.

A. I believe that salary should be the primary element in your compensation system for associates. However, you might want to pay a performance bonus for attorney fees in excess of a certain threshold - say three times salary. So, if you are paying an associate $100,000 you might pay a bonus of 20% for fees collected in excess $300,000 ($75,000 per quarter) and pay the bonuses quarterly. In order to reward other contributions you might want to tie additional bonus to accomplishment of specific strategic goals agreed to in advance each year by you and each associate. For example:

• Write and publish two articles during the year - 2% of salary
• Obtain a certification or other designation - for example CELA - 2% of salary
• Serve as chair on a bar association committee - 2% of salary
• Bring in a new referral source that actively refers new clients to the firm - 2% of salary
• Actively mentor and train a new associate attorney - 2% of salary

Thus, a maximum of 10% of salary could be received by the associate in goal bonus ($10,000 for a $100,000 associate) and $20,000 could be received if $400,000 in fees were collected - for a total of $30,000 in bonuses.

The goals should be require some degree of stretch and should be result oriented rather than activity oriented. Chair on a bar association committee is a result - attending bar associate meetings without being notices is an activity.

Click here for our blog on compensation

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.