law firm compensation plan, bonus, subjective, objectiveIn determining attorney compensation,  bonus considerations can be either subjective or objective in nature.

 

Subjective bonuses should be considered when intangible value is created or the achievement is not economically measurable. Typical areas of work that fall under this bonus category are:

  • Quality of professional work
  • Work ethic
  • Client relations and service
  • Personal development
  • Business development competence
  • Professional recognition
  • Training contributions
  • Adding to the reputation of the firm

Such awards are not tied to a specific economic contribution but encourage continuous development among lawyers. The value is seen in increased capability and value to clients as well as personal growth. For this bonus category, it is important to adjust expectations towards long-term rather than short-term benefits.

Objective bonuses are defined as rewards for meeting or exceeding levels of billable hours, billings, collections or profitability. Unlike subjective awards this bonus type requires consistency in its methodology to incent attorneys. Certain measurements like profitability bonuses with rather long-term benefits are harder to calculate and therefore require a thorough explanation to the team members.

The use of profitability models requires a certain level of transparency and information sharing concerning cost structures. The benefits of sharing profitability information include:

  • Helps manage expectations;
  • Can pressure firm management to operate efficiently;
  • Helps ensure that compensation is competitive;
  • Incents improved billing and collection realization, cost management and revenue maximization (rates and other billing approaches);
  • Improved business acumen and maturity at all levels;
  • Supports building a profitable practice;
  • Better prepare lawyers for eventual partnership; and
  • Mitigates the tendency to focus on billable hours to the exclusion of all else.

Through comprehensive guidelines and accountable management, a firm can ensure that lawyers do not feel unfairly treated based on available profitability information.

In some situations, firms may prefer alternative compensation plans that differ from typical salary and bonus approach. Typically, these plans include fee sharing, profit sharing, hourly compensation and completion/task- based compensation. In any case, compensation policies and pay plans should be based on a comprehensive approach that includes written guidelines, rules, context and philosophy, and transparency, while anticipating strategic needs of firm.


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