Many law firm partner compensation plans were designed during a time of near unlimited demand for legal services, when clients might whine a little but would otherwise pay ever-increasing hourly rates. High demand served as “bowling alley bumpers,” protecting partners from the adverse effects of ineffective marketing and business development, ensuring that revenues and profits increased every year. And so countless partners came of age believing that simply delivering good legal work was a certain recipe for financial success. In today’s market, clients have a wider menu of options for procuring legal services, so finding and keeping client work is more challenging and more critical than ever. But law firm leaders are waking to the realization that partner compensation plans often underemphasize business development and, in some cases, pose a significant obstacle to fostering a collaborative, client-focused, continuous improvement and growth-oriented culture. It’s time to fix that.
Follow the Money
If we want to accelerate our business development performance to meet our growth goals, we first need to know how we make money. We must understand the building blocks of our business, working backward from aggregate results, to the practices and matter types generating those results, to the efforts necessary to win more of these activities. Instead, many practice group leaders start at the opposite end by allowing the partners to brainstorm different marketing activities they enjoy, irrespective of effectiveness, and build marketing budgets around these preferences. A more sophisticated approach incorporates past performance and helps to prioritize marketing and business development efforts. Done well, the practices invest primarily in marketing tactics that create visibility and generate opportunities with key clients or targets, primarily where there’s greater potential for competitive differentiation. And to improve the probability of converting these opportunities into paid engagements, leaders draw on the varied expertise of cross-functional teams. The best rainmakers may open a new discussion, but the most consultative partners will help the client scope the issue, and the top technical experts will help devise a project plan, and the finance team and management will craft a suitable budget. It takes a village.
Contrast this with the usual approach of rushing every new contact from “Nice to meet you.” to “Here’s a brochure outlining our capabilities and a proposal to do work for you someday on something.” and it’s easy to see the potential for dramatically improved effectiveness. Still, even the most data-driven approach to targeting and selling will come to a screeching halt when the partners have minimal incentive to participate.
Play to Your Strengths
A successful law firm embraces different roles, different skill sets and different contributions for continued success. Generating new business is difficult, but rainmakers won’t win the work without a strong team behind them. Delivering quality legal work is also hard, but technical experts will have nowhere to apply their expertise if no one brings in the work. And neither rainmakers nor technical experts will thrive without careful management of the client relationship, across matters and practices, spanning numerous client contacts. While all of these contributions are necessary, some contributions may be deemed more valuable than others, and this value may differ by practice or by matter type or by client industry and may change from year to year. The goal is to maximize the contributions of all lawyers, rather than dilute performance by asking, or allowing, lawyers to pursue that which is not their highest and best use.
A mature practice might focus more on sustaining profitability through efficiency, so those managing the client relationship and delivering the work might have a greater impact on client retention. An emerging practice fighting for market share is likely to focus more on winning engagements than generating profits. A feeder practice, one that on its own might not be lucrative but that generates leads for others, might focus more on maintaining cost control while creating cross-selling opportunities. Few partners can tackle all of these objectives with equal skill, so an effective compensation plan must allow for different rewards for different contributions.
Transparency Is the New Black
Despite management’s insistence otherwise, law firm partner compensation plans, whether lockstep or eat-what-you-kill, subjective or formulaic, open or closed, tend to share an overriding flaw: They fail to proactively and clearly define the behaviors expected of partners in order to drive such behavior. Instead, rewards are calculated at year-end, in processes oft-shrouded in mystery and doled out to partners who may not know what specific actions were valued, or how their contributions were valued relative to their peers.
Changing lawyer behaviors requires leaders to set expectations in advance and to clearly identify the rewards associated with pursuing these desired behaviors. As the firm’s financial pie grows, partners who engage in desirable behaviors have access to a greater proportion of these rewards. However, a partner who opts out and, for example, pursues unprofitable matters or engages in unprofitable activities such as billing partner work at associate rates just to stay busy, might not see compensation drop, but will see an end to the firm subsidy of these dilutive behaviors.
If firm management is serious about accelerating business development, then they must reward collaboration in the pursuit of new business. If the compensation plan forces partners to fight over credit, partners will act alone. While seemingly self-evident, it comes as a surprise to some leaders that a compensation plan offering substantially more rewards for billing work than for originating work will drive partners into their offices rather than into the marketplace. When partners who refuse to collaborate, cross-sell or delegate remain at the top of the compensation ladder, the clear message is that individual results matter most. In fact, this sort of partner fails to meet the most fundamental fiduciary requirements of an owner and instead poses an organizational risk. Leaders who ignore or foster this behavior have also failed to meet their obligations.
Leaders Must Lead
An old maxim says, if your compensation plan and your business strategy are in conflict, then your compensation plan is your business strategy. This isn’t a reflection of selfish partner behavior. In fact, partners assume that firm leaders have designed a compensation plan that rewards activities beneficial to the firm. Leaders who recognize the compensation plan conflicts with the firm’s growth strategy, yet hope partners will act against their economic self-interest for the good of the firm, are simply inept. It’s the leaders’ obligation to create alignment so that what’s good for the partner is what’s good for the partnership. Rewarding business development is more complicated than merely dialing up origination credits. Leaders must first understand the firm’s economic drivers and then clearly align rewards for the partner behaviors supporting business growth.
Timothy B. Corcoran is principal of Corcoran Consulting Group, a trustee and fellow of the College of Law Practice Management, and was 2014 president of the International Legal Marketing Association. A former CEO, he specializes in helping law firm and law department leaders adapt and profit during a time of great change. Based in New York, he authors Corcoran’s Business of Law blog and can be reached at bringintim.com and @tcorcoran.