Bonus Systems – should you use them?

This is the first of a three part series. (Read Part 2 and Part 3)

We start with: Why would a law firm use bonuses to pay lawyers?

There are two valid reasons:
(i) provide incentives to change behaviour, and/or (ii) shift part of employment costs from fixed into variable.

Let’s start with changing behaviour.

We want early career lawyers to produce. So we can set a reasonable budget and then reward fees over that budget. Theoretically, when there is plenty of work going around, producers will then go the extra mile. The firm has no downside financial risk because the rewards only kick in once budgeted fees are billed. In a bonus environment, there is a heightened professional standards imperative to review draft bills rigorously… because of the arguable potential for conflict between financial reward and duty to client.

For later career lawyers, we are more interested in business development, client management, and team supervision. Sure, everyone needs a budget…. but just production isn’t the main game at this level. So – offering production bonuses to Senior Associates doesn’t make much sense if you really want them to push work down and supervise it. For senior people, it makes more sense to explicitly reward inter alia successful business development.

To the second reason…. Shifting fixed labour costs into variable.

In these situations, the fixed part of salary is well below industry standards, but with performance hoops that enable movement to above industry standards. It’s a form of risk and reward shifting for firms trying to keep a lid on costs. This approach struggles to attract talent when the jobs market is strong. Candidates have too many lower risk options.

These are the basics. Yet, firms regularly botch bonuses – especially those new to the concept. We’ll talk about that next month. And then there’s the question of – do they work anyway? Stay tuned.

 

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

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