Bi-Monthly Recap | Using Profitability and Metrics to Re-Align Law Firm Culture and Compensation
Tuesday, October 22, 2019
Posted by: Amanda Davis
On Tuesday, September 17th, ALA Chicago hosted an Educational Seminar at Polsinelli PC. 55 attendees came to hear Russ Haskin, of Wilson Allen Legal, give a presentation entitled “Using Profitability and Metrics to Re-Align Law Firm Culture and Compensation.” During the hour spent inside Polsinelli’s beautiful office space, Russ covered a wide range of topics, all revolving around Partner Compensation. Here is a brief overview, from Russ himself:
“At its simplest, law firms need to provide value to clients – providing quality legal counsel at an acceptable price – while achieving a satisfactory return to the firm. It would seem logical that firm compensation systems would support this basic tenet and advance strategies to reward firm-furthering activities. However, the reality is that compensation systems often have significant gaps that, at best, lack appropriate principles, and at worst, reinforce activities counterproductive to firm success.
Partner compensation modeling is not an easy task. Given the wide breadth of activities partners perform, a changing resource pool, and different client demands, a “perfect compensation model” is unattainable. Therefore, firms must outline and provide as much transparency as possible to the activities that they identify as differentiators for firm success. Those differentiators must represent objective and subjective criteria. They may also alter from firm to firm, so proper data collection, analysis, review, and strategic alignment are essential for any compensation remodeling to achieve success. For this reason, many firms have shifted toward a balanced-scorecard approach, which establishes key criteria for firm success, weighs each criteria, and scores partners on their acumen. By harnessing the power of data, firms can develop compensation models more in tune with today’s industry dynamics.
Many in the legal industry are afraid of these shifts in compensation modeling and believe culture will be greatly impacted. They’re right. Culture will and should be impacted by compensation. But that’s nothing new – not for law firms or any other business.”
Russ shared his views on many different law firm structures and compensation systems, from lockstep models focused on seniority, to the balanced scorecard method (his personal favorite). He acknowledged that there is no perfect system or single method for compensating partners that will work for all firms. The culture and history of each law firm will always play a major role in driving the compensation system for partners. No two firms are identical, so no two compensation systems should be.
But, there is one constant in all of this, and it is perhaps the one most important point that Russ hoped to emphasize throughout his presentation. No matter how you compensate partners (and really, all attorneys), you are encouraging a specific behavior. If partners are compensated for originations, partners are going to spend more time originating. If partners are compensated for profit, they are going to spend time working on efficiencies. If partners are compensated for work, they are going spend their time working matters. Too often, Russ says, law firms either fail to recognize that they are rewarding bad behavior, or they fail to emphasize to their partners the good behavior for which they want to reward them for.
Partner compensation is never an easy topic to broach in a law firm. But it is a topic that can strongly influence the direction of a firm, either in a positive or negative trajectory. As Russ showed, by carefully reviewing a firm’s key statistics and modeling compensation around these, a firm can create a successful long-term road map for its partners.
Special thanks to Russ Haskin for his time, and to Leslie Bobb at Polsinelli for help in coordinating the fantastic space for the event.
Click here for event photos!
Michael Hill, CPA
Gould & Ratner