Bonus Systems – do they work anyway?

This is the third in our series. (Read Part 1 and Part 2)

Opinions about bonuses are typically polarised, between the devotees and those who see them as unprofessional.

The fact that some lawyers earn big bonuses doesn’t mean they work. The true test is: on average do bonus-remunerated lawyers achieve better bottom line results for a firm?

I was a bonus zealot once. Now I’m not so sure. Employed lawyers roughly follow the 1/3, 1/3, 1/3 rule. That is, a third will produce great results all the time, because it is in their DNA. A third will go hard when it suits them. And the other third need a decent push along – up or out. Obviously these proportions can vary slightly.

So why pay production bonuses to the top third, who will rise to the occasion anyway? (And this group is where most bonus payments will land) You might motivate the mid third around the margins, and typically the bottom third underperform anyway.

Interestingly, I have found that the 1/3,1/3,1/3 rule applies just the same to private and government law offices (bonuses aren’t available in government offices). In both environments, lawyers have an abiding sense of what constitutes a proper base salary, and then after that it is all about opportunity, work environment, career path, challenge, personal standards, and so on.

You can transplant (roughly) the 1/3, 1/3, 1/3 rule to business development (BD) as well. The key issues here are personal style and confidence. Training can assist around the margins, but BD is much more nature than nurture. If they are having fun and see it as contributing to their progression, they’ll do it anyway. If they hate it and/or don’t have the skills, no amount of money will alter their behaviour.

Bonus systems also involve some unintended consequences.

You’d better have your rules exquisitely finely tuned – because arguments about bonuses are more demotivating than not having them at all.

Further, lawyers mentally recalibrate their bonuses into their base value. If their flow of work drops, they will see the resulting $$$ reduction as a pay cut, which is usually demotivating.

With promotion to senior roles where production is pushed down (and their personal prod bonuses removed), they will negotiate to have their historical bonuses grossed up into the starting point for their new base salaries.

Finally, once you’ve started a bonus system, it is very hard to dismantle it without making all kinds of other expensive remuneration adjustments.

Large sophisticated firms that can provide clear career pathways and very high long term incomes tend to use bonuses lightly, if at all…. Simply, because they can achieve their objectives without them.

In summary – many firms are committed to the idea, and if it’s part of a firm’s culture and is well run, then so be it. But does the science back it up? You decide.

 

Published: Queensland Law Society – Proctor, March 2015 (p. 53)

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