Best Practice Tips: Associate Attorney Compensation and Motivation
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. Our firm is based in Springfield, Ill. We have four partners and four associates. We are a general practice firm. All of our associates have been with the firm for more than 10 years, and they receive $100,000 base salaries plus discretionary bonuses. Our associates are excellent attorneys; however, none of them bring in any business and their production numbers are low. Annual billable hours are below 1,200 and working attorney fee collections are below $300,000. We have not given raises or bonuses for the last several years. We are losing money on some of our associates and not even covering our overhead, alone making any profit from our associates. We are at a loss at what to do. Please share any thoughts or ideas that you might have.
A. It would be interesting to know whether you set production goals such as billable hours or working attorney fee collection goals for your associates, and if and how they are enforced. Billable hours should be in the range of 1,600-1,750 per year, and fee collections should be $300,000 or more for associates being paid $100,000 per year. It sounds like production goals either don’t exist or are not enforced.
I suggest that you look into the causes of your associates’ low production. Here are a few questions you should ask yourselves:
- Does the firm have enough work for the associates?
- Are the associates working enough hours? What is their work/billable hours ratio? The goal should be 70 percent.
- Are the associates clear as to their goals – billable hours/fee collections?
- Do associates have time management issues?
- Do associates have timekeeping issues?
- Are there consequences for poor production?
I suggest that you meet with each of your associates, address the above questions, and determine what is going on. It could be one or all of the above. If the firm does not have enough work for the associates, you need to determine if partners are delegating sufficient work, whether business is down at the firm (short-term vs long-term), and whether the firm may have too many associates for the work that is available. If there simply is not enough work, has not been enough work for some time, and it is projected that the firm’s workload will be the same for the foreseeable future, then the firm will need to consider eliminating an associate’s position or reducing the work hours and compensation of one or more associates. If the work is there and associates are not putting in the hours, then you need to ensure that goals and consequences for non-performance are in place. You might want to consider changing your compensation system. If associates are having problems with time management or timekeeping, conduct some training sessions.
Some firms have changed their systems whereby associates are paid a base salary plus a bonus for billable hours or collected fees over a predetermined threshold. However, incentive bonuses work better when salaries are kept low. Often, when salaries reach $100,000 or more, additional bonuses may not motivate attorneys who are not hungry for more, are comfortable, and prioritize a work-life balance.
While you must get associate compensation right in order to acquire and retain top associate talent, as well as reward performance and reinforce desired behaviors, the starting point is hiring and retaining the right people to begin with.
Research from a classic business study that was highlighted in the popular business book “Good to Great” (Collins, 2001) found that the method of compensation was largely irrelevant as a causal variable for high and sustained levels of performance. Other research also bears out that performance and motivational alignment are impacted by intrinsic and additional factors rather than extrinsic factors such as compensation. Over the years, I have seen too many partners leave lucrative situations in law firms to join other firms for less compensation or to start their own firms, which suggests that it is not only about the money or compensation package.
Your compensation system should not be designed to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there.
James Cotterman, Altman & Weil, Inc., contends that there are two groups of employees for whom compensation is not an effective management tool. The intrinsically motivated (six percent to 16 percent of attorneys perhaps) do not need compensation as an incentive. The struggling performers (another six percent to 16 percent) will not react favorably to a compensation system that rewards positive behavior.
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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.