Best Practice Tips: Compensation Ideas for Law Firm Staff

Asked and Answered

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

Q. I am the firm administrator with a ten attorney firm in Long Beach, California. I really enjoyed reading your blog post Law Firm Compensation – Bonuses for Staff, which discussed how to measure performance for bonuses. I really like the approach of establishing goals at the beginning of each year — two for the firm, and two that are personal — and tying bonuses to measurable outcomes. Have you used other approaches other than percentage of salary? Can you give additional examples of specific goals that would be appropriate for a bookkeeper, office manager, or firm administrator?

A. Research and experience tells us that employment expect the following five things from management:

1. Mutual agreement as to what is expected.
2. The opportunity to exercise his or her ability.
3. Feedback on his or her performance.
4. Direction when needed.
5. Reward — compensation in equal measure to his or her contribution to the firm.

The problem with staff and employee bonuses is quantifying and measuring performance so that bonuses are not “Santa Clause” bonuses. A bonus system tied to measurable goals/objectives can eliminate the problem of bonuses being considered by employees as an entitlement.

Other approaches that some of my law firm clients have used is to develop a limited laundry list of goals with a specific dollar amount tied to each goal for specific positions such a bookkeeper, firm administrator, etc. Typically, there is a cap on how much can be earned per year, usually about 5–10 percent of salary. At the beginning of each year the employee selects the goals that they plan on working on for the upcoming year, obtains approval from his or her supervisor, and both parties sign off on a goal plan for the year. The goals must be SMART goals. Bonuses are paid as goals are completed. 

Here are some additional examples:

Bookkeeper 

1. Reduce accounts receivable over 90 days by 25 percent.
2. Write and implement an accounting manual by December 31 of this year.

Firm Administrator 

1. Manage the firm within the approved expense budget for the year.
2. Reduce staff turnover during the year by 25 percent below an average of the past three years turnover history.
3. Reduce headhunting fees for staff by 40 percent below an average of the past three years.
4. Write and implement an employee handbook by December 31 of this year.
5. Implement a new time and billing system by December 31 of this year within time and cost budget.

The key to the goals is that they are important to the firm and are measurable.

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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 and author of The Lawyers Guide to Succession Planning published by the ABA. 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.