Bonus Systems – what to measure?

This is the second in this series. (Read Part 1 and Part 3)

In this part, we look at bonus structures.

We recommend four core principles… simplicity, clarity, consistency and fairness.

Simple is best. Complex mixes of qualitative and quantitative can be unhelpful. Indeed, contestable qualitative measures can actually demotivate. Qualitative feedback is fine for how I am going and do I still have a job, but not when calculating financial rewards for specific behaviours.

Lawyers are rules-based people. If I do xxx, am I entitled to YYY, and when do I get it?

For production – what do you measure?

Not time. Time rewards inefficiency and uncollectables. Usually, not collections either. Why penalise a producer because their Partner poorly manages credit? Actual bills usually work best. They reflect value and what a producer can control.

Budgets should be achievable. If you need to get some external help on the typical fees / TEC multiples then do so.

What’s a workable incentive?

5% of bills over budget won’t change behaviour. 10% usually won’t either. Consider 15% to 25%. Remember, they’ve already reached budget so it’s $1 for them and $3 for you. Look after the little things. Is it super inclusive? How often are they paid (quarterly is good / yearly is way too long). Can / should you claw back overpayments? All these small issues must be clear.

How do you reward business introduced?

Some very big firms have had cause to regret their schemes. You need clear rules. Try to link your scheme specifically to an employee’s independent personal initiative. That is, if they happen to answer a phone – no. If they meet someone at a firm sponsored function – no. Make sure you have sunset rules. These bonuses in perpetuity can send a firm broke.

Transparency, clarity, consistency and fairness are nearly always the difference between a motivating and demotivating bonus structure. But…next month – do they work anyway??

 

Published: Queensland Law Society – Proctor, February 2015 (p. 58)

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