Law Practice Management Tip of the Week

Is Your Firm's Culture an Asset or a Liability?

Recruiting and retaining top-quality rainmakers, as well as those myriad and influential attorneys who possess critical expertise in today’s “hot” practice areas, are two of the most critical challenges confronting managing partners and executive committees in today’s competitive environment.

In light of the numerous opportunities for such powerful and productive lawyers to join competing law firms, you and your fellow managers need to be especially cognizant of whether your firm culture, its management practices, and the presence or absence of appropriate strategic planning and marketing activities may finally drive lateral candidates to seek more lucrative and professionally rewarding opportunities elsewhere.

A firm’s culture may be its greatest strength for determining and achieving its immediate and long-term objectives. However, that culture may be its greatest weakness if it is bound to (1) outdated traditions (“because we have always done it this way”); (2) management styles that are dysfunctional and inconsistent with the desires and expectations of a majority of the partners and with the needs and priorities of the firm; or (3) outdated philosophies of senior or even departed partners that are inconsistent with the marketing and compensation programs required to compete aggressively with other financially successful, proactive law firms.

Danger Zone:

Absent the determined willingness of lawyer/managers to be sensitive to the changing needs of a firm, and the desires and expectations of its partners regarding the core values that guide the firm – including its methods for determining and implementing policies, as well as compensating its lawyers and engaging in strategic and marketing planning that will allow it to compete effectively with other law firms in its geographic area – the firm will have problems functioning in its practice environment. It may have difficulty surviving.

Among the warning signs:

(1) Partner complains or suggests that they are not being kept informed of matters that involve staffing, termination of attorneys, or specific developments that may affect particular partners or their areas of practice.

(2) Concern that they are being manipulated by lawyer management or a group of dominating partners.

(3) Exasperation at being assigned responsibility for performing administrative or substantive tasks without being granted adequate authority to accomplish them.

(4) Signs of unwillingness among the more influential partners to share the decision-making for the firm with other lawyers.

(5) Perceptions that, because decisions are being made by a select few, the partner meetings are essentially eyewash, as major decisions are made beforehand and that they are done deals in any event.

(6) Distress, exacerbated by this lack of open communications between the more influential partners and the rest of the attorneys, that they are always those other partners who seem to learn about decisions through the grapevine rather than from the decision-makers.

(7) The palpable sense that, since senior (or otherwise influential) partners consider the firm their private domain and take others for granted, there is simply a lack of concern about the status or feelings of other partners by some of these more influential partners.

(8) Resentment of a minority clique of partners who seem to see themselves as an entitled leadership elite, making decisions or engaging in activities that ignore or disregard the concerns, interests, wishes, or expectations of a majority of the partners.

(9) Built-up frustration at the perceived insensitivity to the personal and professional needs and priorities of partners, particularly as it manifests itself on a workaday basis, for example, delegating client matters at the last minute and expecting that the work be performed immediately or within an unrealistic time frame. Such expectations are especially infuriating when the matter has languished on the originating partner’s desk for some time.

(10) Discontent with unfair pay plans that allow the more influential partners to greedily manipulate the compensation system to suit their own purposes.

(11) Evidence of a lack of adequate planning for transferring client responsibility from the more senior partners to mid-level and junior partners, which often reaches a head with a fall-off in business due to an unanticipated and unplanned-for client departure, or the end of a significant matter that has kept several attorneys and staff fully occupied but with no plans for how to replace that business.

(12) A sense of tangible inequity when the more senior partners reduce their active involvement in business origination, work production, or firm management, without an concession to receiving a proportionately diminished profit share.

What Can Be Done?

Even at firms where such symptoms have apparently progressed to an advanced stage, it is often not too late to begin to institute a corrective program. That program must be predicated on three key words: Communicate, Communicate, and Communicate! In particular:

(1) Lawyer management should take particular care to assess the needs, requirements, and expectations of all of the other lawyers.

(2) Lawyers should be given the opportunity to provide input on relevant governance issues and to be kept informed about those activities that will influence the firm’s future.

(3) Have regularly scheduled meetings; announce the dates and times of these meetings far enough in advance to clear schedules; and hold them regardless of whether the more influential partners are present.

(4) Prepare an agenda for these meetings; request partners to contribute to the agenda; circulate the agenda prior to the meeting; provide background information when and where possible in advance of the meeting; prepare minutes or summaries of the meeting so that there will be a written record of the decisions reached; and finally, circulate these minutes to the partners for informational purposes.

(5) Encourage partners to speak out on various policy, financial, and operational matters that will affect the firm and its practice groups, presently and in the future, without fear of retribution by the dominant and more influential partners.

(6) Reach a consensus of a significant majority of the partners about the kind of culture that the want for the firm. Then, develop a plan detailing how to achieve these goals, with partner responsibility for putting practical components of the plan into action, along with designated dates for status reports and implementation.

(7) Ensure that the firm has a compensation system that is well-conceived and implemented and that rewards the positive efforts of partners and associates with incentives for them to perform those activities that will advance the firm in concrete and articulate ways.

(8) Provide all lawyers with the opportunity to grow, professionally and personally, by attending CLE, in-house training programs on substantive matters, and on a selective basis, by having them participate in administrative tasks in order for them to learn about managing aspects of the firm, consistent with the culture that has been formally articulated.

(9) Provide opportunities for the mid-level and junior partners (and associates) to participate in the orderly succession of firm management and to personally assume specific responsibilities for client development and retention. Be sensitive to the needs and concerns of the older lawyers and ensure that the current compensation system does not work at cross purposes with the firm’s ability to achieve these immediate and long-term objectives.

(10) Follow up on the progress of the firm and its components to ensure that cultural innovations are being maintained and reinforced by all lawyers.

(11) Be sensitive to the need to tweak elements of the firm’s culture in accordance with the priorities and needs of the partners, as required, to avoid problems down the road.

How effective a firm’s lawyer managers will be in achieving the kind of culture needed to encourage the partners to identify objectives and to develop and implement strategies to accomplish these goals will depend on their willingness and ability to develop and articulate shared values.

In addition to benevolent and well-meaning comments by firm management about what should and should be the prevailing culture, the results will depend on the attitudes shown by lawyer management just as much in what they don’t say. It will depend on how the more influential members of the firm respond to various situations with which they must deal. It will depend on how their interpersonal relationships with each other, members of the professional and administrative staffs, clients and the community at large, are perceived.

In other words, there must be change and the change must be obvious.

Recruiting and retaining top-quality rainmakers, as well as those myriad and influential attorneys who possess critical expertise in today’s “hot” practice areas, are two of the most critical challenges confronting managing partners and executive committees in today’s competitive environment.

In light of the numerous opportunities for such powerful and productive lawyers to join competing law firms, you and your fellow managers need to be especially cognizant of whether your firm culture, its management practices, and the presence or absence of appropriate strategic planning and marketing activities may finally drive lateral candidates to seek more lucrative and professionally rewarding opportunities elsewhere.

A firm’s culture may be its greatest strength for determining and achieving its immediate and long-term objectives. However, that culture may be its greatest weakness if it is bound to (1) outdated traditions (“because we have always done it this way”); (2) management styles that are dysfunctional and inconsistent with the desires and expectations of a majority of the partners and with the needs and priorities of the firm; or (3) outdated philosophies of senior or even departed partners that are inconsistent with the marketing and compensation programs required to compete aggressively with other financially successful, proactive law firms.

Danger Zone:

Absent the determined willingness of lawyer/managers to be sensitive to the changing needs of a firm, and the desires and expectations of its partners regarding the core values that guide the firm – including its methods for determining and implementing policies, as well as compensating its lawyers and engaging in strategic and marketing planning that will allow it to compete effectively with other law firms in its geographic area – the firm will have problems functioning in its practice environment. It may have difficulty surviving.

Among the warning signs:

(1) Partner complains or suggests that they are not being kept informed of matters that involve staffing, termination of attorneys, or specific developments that may affect particular partners or their areas of practice.

(2) Concern that they are being manipulated by lawyer management or a group of dominating partners.

(3) Exasperation at being assigned responsibility for performing administrative or substantive tasks without being granted adequate authority to accomplish them.

(4) Signs of unwillingness among the more influential partners to share the decision-making for the firm with other lawyers.

(5) Perceptions that, because decisions are being made by a select few, the partner meetings are essentially eyewash, as major decisions are made beforehand and that they are done deals in any event.

(6) Distress, exacerbated by this lack of open communications between the more influential partners and the rest of the attorneys, that they are always those other partners who seem to learn about decisions through the grapevine rather than from the decision-makers.

(7) The palpable sense that, since senior (or otherwise influential) partners consider the firm their private domain and take others for granted, there is simply a lack of concern about the status or feelings of other partners by some of these more influential partners.

(8) Resentment of a minority clique of partners who seem to see themselves as an entitled leadership elite, making decisions or engaging in activities that ignore or disregard the concerns, interests, wishes, or expectations of a majority of the partners.

(9) Built-up frustration at the perceived insensitivity to the personal and professional needs and priorities of partners, particularly as it manifests itself on a workaday basis, for example, delegating client matters at the last minute and expecting that the work be performed immediately or within an unrealistic time frame. Such expectations are especially infuriating when the matter has languished on the originating partner’s desk for some time.

(10) Discontent with unfair pay plans that allow the more influential partners to greedily manipulate the compensation system to suit their own purposes.

(11) Evidence of a lack of adequate planning for transferring client responsibility from the more senior partners to mid-level and junior partners, which often reaches a head with a fall-off in business due to an unanticipated and unplanned-for client departure, or the end of a significant matter that has kept several attorneys and staff fully occupied but with no plans for how to replace that business.

(12) A sense of tangible inequity when the more senior partners reduce their active involvement in business origination, work production, or firm management, without an concession to receiving a proportionately diminished profit share.

What Can Be Done?

Even at firms where such symptoms have apparently progressed to an advanced stage, it is often not too late to begin to institute a corrective program. That program must be predicated on three key words: Communicate, Communicate, and Communicate! In particular:

(1) Lawyer management should take particular care to assess the needs, requirements, and expectations of all of the other lawyers.

(2) Lawyers should be given the opportunity to provide input on relevant governance issues and to be kept informed about those activities that will influence the firm’s future.

(3) Have regularly scheduled meetings; announce the dates and times of these meetings far enough in advance to clear schedules; and hold them regardless of whether the more influential partners are present.

(4) Prepare an agenda for these meetings; request partners to contribute to the agenda; circulate the agenda prior to the meeting; provide background information when and where possible in advance of the meeting; prepare minutes or summaries of the meeting so that there will be a written record of the decisions reached; and finally, circulate these minutes to the partners for informational purposes.

(5) Encourage partners to speak out on various policy, financial, and operational matters that will affect the firm and its practice groups, presently and in the future, without fear of retribution by the dominant and more influential partners.

(6) Reach a consensus of a significant majority of the partners about the kind of culture that the want for the firm. Then, develop a plan detailing how to achieve these goals, with partner responsibility for putting practical components of the plan into action, along with designated dates for status reports and implementation.

(7) Ensure that the firm has a compensation system that is well-conceived and implemented and that rewards the positive efforts of partners and associates with incentives for them to perform those activities that will advance the firm in concrete and articulate ways.

(8) Provide all lawyers with the opportunity to grow, professionally and personally, by attending CLE, in-house training programs on substantive matters, and on a selective basis, by having them participate in administrative tasks in order for them to learn about managing aspects of the firm, consistent with the culture that has been formally articulated.

(9) Provide opportunities for the mid-level and junior partners (and associates) to participate in the orderly succession of firm management and to personally assume specific responsibilities for client development and retention. Be sensitive to the needs and concerns of the older lawyers and ensure that the current compensation system does not work at cross purposes with the firm’s ability to achieve these immediate and long-term objectives.

(10) Follow up on the progress of the firm and its components to ensure that cultural innovations are being maintained and reinforced by all lawyers.

(11) Be sensitive to the need to tweak elements of the firm’s culture in accordance with the priorities and needs of the partners, as required, to avoid problems down the road.

How effective a firm’s lawyer managers will be in achieving the kind of culture needed to encourage the partners to identify objectives and to develop and implement strategies to accomplish these goals will depend on their willingness and ability to develop and articulate shared values.

In addition to benevolent and well-meaning comments by firm management about what should and should be the prevailing culture, the results will depend on the attitudes shown by lawyer management just as much in what they don’t say. It will depend on how the more influential members of the firm respond to various situations with which they must deal. It will depend on how their interpersonal relationships with each other, members of the professional and administrative staffs, clients and the community at large, are perceived.

In other words, there must be change and the change must be obvious.

Suggested Guidelines for Allocating Origination Credit for Partner Compensation

By Joel A. Rose

A partner in a Long Island based mid-sized law firm requested examples of guidelines for the
allocation of client origination credit for compensating partners.

For illustrative purposes only, below are “Origination Rules” that were excerpted from a management report I recently prepared for a law firm client. Please bear in mind that these rules were specifically prepared for a particular law firm and may not be appropriate for every law firm.

Illustrative Origination Rules for business origination are as follows:

1. Individual Credit for Original Client:

A lawyer brings in an original client (a client who is in no way affected by any relationship with any previous client), and no other claimant for this credit appears in the picture. The business credit normally goes to that lawyer.

Business origination credit may be earned for clients who have been long dormant, and who are brought in later on other business. They are then credited to the lawyer first responsible for bringing in the client, unless otherwise approved. It should be noted that estates or estate planning may mature or flow from a will drawn perhaps ten years or more before.

Any lawyer given credit for an original client will maintain contact with that client’s activity with the firm if the client’s work is of a continuing nature and this appears necessary in the interest of professional standards or the economics of the firm, or both.

It is fundamental that, when one lawyer alone has developed a prospective client and the prospective client brings him or her a case, all of the credit for that business foes to that lawyer. Similarly, where one lawyer alone has developed another lawyer or group of lawyers, as a future source of business, and the first case comes in from that source, the credit goes to the lawyer who did the developing.

Origination credit will change if a client leaves the firm and another firm lawyer brings that client back into the firm.

Another circumstance under which origination credit may change is if one lawyer brings in a client but after a period of years it is another firm lawyer that has been managing that client and its responsible for maintaining the relationship. Origination credit will change if the lawyers agree that a change in the origination credit should occur.

2. Joint Credit for Original Credit:

An original client may come in as a result of the development activities of more than one lawyer. Such cases should be divided appropriately to the circumstances. Usually this will be settled by agreement between the lawyers interested. The split should reflect each lawyer’s proportionate contribution.While in any particular case the business credit may be divided by mutual agreement between or among all parties who may have claim to such credit, such division, however, shall not be a precedent binding upon the committee thereafter in making later decisions.

3. Firm Credit:

In certain cases, there will be no individual or joint credit for business origination, and the Executive Committee will assign these fees to “firm credit.” These situations should be held to a minimum in number and time duration for new items of business.

For example, when an original client comes in not as a result of developing by any particular lawyer(s), but because of firm listing directories or general reputation or firm activity, or when a client comes in through past or present non-lawyer employees, these will become “firm credit.”

It may be desirable temporarily to withhold the business credit to any individual lawyer. In these situations, the credit will be considered “firm credit.”

4. Credit When Lawyer Leaves the Firm:

If a former shareholder shared the business credit for a client jointly with one of the continuing shareholders before he or she left the firm, the continuing shareholder shall then be entitled to all of the business credit for this client, unless otherwise decided.

5. Individuals in Corporation:

When an individual who is a member of a corporation or other enterprise which is a client of a lawyer seeks another lawyer for the handling of a personal matter, credit may be assigned to the lawyer sought for this matter and the individual will then become the client of that other lawyer.

6. Areas of Domination:

Where cases come into the firm because of the areas of influence of a shareholder, and they continue to dominate that relationship, they will be assigned credit for that business. However, the senior shareholders are encouraged through the Executive Committee to divide or reassign responsibility credit for business to younger or newer shareholders will recognition of situations where other shareholders have a role in maintaining the firm’s areas of influence or client relationships.

Due thought should be given to continuity of the firm’s operations and the possibility of withdrawal, retirement, temporary or permanent disability, death or prolonged absence of any of the shareholders, regardless of age. Such assignments of credit will almost inevitably bring in still further business to the credit of both the older and younger lawyers and provide assurance of a continuing satisfactory income to the firm.

Your comments and suggestions about how Origination credits are allocated in your firm are welcome.

When deciding how to cope with the current recession, one strategy that has been implemented with success by managing partners and members of executive committees in many of the more progressively managed law firms has been to conduct a retreat that has been especially designed to address the tensions and insecurities that partners (and associates)may feel about their future.

Typically, managing partners and executive committees in many firms follow the predictable pattern of attempting to enhance the marketing efforts of all of their attorneys, reducing their costs, reassessing the performance of partners, associates and administrative support staffs, reducing and/or holding back partners salaries/draws, shortening the attorney work week as well as their compensation, and, if necessary, changing the status of attorneys and downsizing. In other firms, managing partners and executive committees view the recession as an opportunity to expand their client base and enhance work sophistication, diversify and specialize to fulfill client demands, increase their market share, upgrade their attorney staff and shore-up internal weaknesses. Also, many firms attempt to add or grow some practice areas, at the same time, de-emphasize others, and take steps to maintain or grow their revenue and profits available for the partners through the acquisition of lateral hires with portable books of profitable business.

Even though intellectually, attorneys in law firms understand the importance of considering these and other strategic options as approaches for dealing with the recession, for many lawyers, these strategies are unsettling and fraught with anxiety and uncertainty.

While developing strategies to cope with the recession, managing partners and executive committees must deal with is to understand their partners’ expectations so that the former may develop and begin to implement strategies to reduce costs and enhance the volume of profitable business which, in turn, leads to increased revenue per lawyer and profits per partner.

To satisfy this challenge, partners in many law firms have retained us to plan and facilitate retreats that have been especially designed to obtain partners’ perceptions about how well the combination of their firms’ leadership/governance (policy determination and implementation), culture(s), strategic planning process, partner compensation system, and client base brings out the energies and talents of their attorneys and other issues of significant importance for the future of their firms and then, together with partners, to develop recommendations about how to deal with these several issues.

Below is a list of representative discussion topics that have been addressed during retreats that we have planned and facilitated:

• Identification of opportunities that will enhance the bottom line;
• Practice areas to invest in, maintain and de-emphasize;
• Internal and external trends the firm should take advantage of in the next three to
five years and geographic expansion;
• Enhancing client relations with existing clients and developing relationships with potential clients;
• Improving service by broadening or narrowing the firm’s focus;
• Practice management strategies to improve quality control, scheduling work assignments to optimize productivity; and enhance productivity;
• Proposing alternative fee arrangements (i.e., other than hourly billing);
• Containing and/or deferring expenses and capitalizing the firm;
• Dealing with under-utilized attorneys and staff;
• The feasibility of re-tooling/reassigning partners, associates and staff from under- utilized practice areas to different practice areas instead of terminating personnel;
• Reducing the number of working hours and downsizing attorney and administrative staff as a last resort;
• Changes in Compensation: Partners and Associates, including providing financial incentives to motivate partners to cross-sell legal services to existing clients and cultivate new prospects within the current and potential marketplace; changing associate pay structures to reward performance and changing partner draw schedules to preserve cash; and
• Increasing lateral recruitment and merging to upgrade and expand the firm’s expertise to better serve existing and potential clients.

Whichever of the above are your firm’s goals for a retreat, it will not succeed unless adequate time and effort have gone into the planning process. In fact, a major portion of the work involved in conducting a retreat must be done before the retreat is actually held. The retreat should not be viewed as a panacea, but as a practical management tool that can be wielded in a variety of ways to assist the firm achieve its objectives.

Retreat Objectives:
The structure, discussion format and duration of the retreat will invariably be determined by what the firm wants to achieve. For example, if there are new trends in major practice areas, then the meeting might entail a review of the firm's ability to take advantage of those potential growth areas. Some firms may use the retreat as a forum to establish plans for transitioning clients from senior partners to others, etc. Often a crisis dictates the agenda, more than likely involving firm economics. If the volume of profitable work has declined and a firm's net profits are down, then the objective of the retreat might be to examine the causes of the problems and what to do about it. Also, it may be necessary to “tweak” or change the firm’s present partner compensation system to incentivize desired behaviors. For example, if a compensation system rewards a certain behavior, then it is likely the partners will engage in that behavior. If, on the other hand, the compensation system does not reward a specific behavior, it will be unlikely that the partners will engage in that behavior. It is perhaps best tool (perhaps the only tool) toward getting partners to change behaviors. As the needs of a firm change, it will be important to have a compensation system that can be adjusted to encourage or discourage different behaviors. During a recession, the firm may need more client generation, more delegation, more cross-selling, or more teamwork. Regardless of whether the compensation system is formula-based or subjective, changes in the factors considered or the weight each factor is given, will encourage the needed behaviors.

Benefits notwithstanding potential drawbacks to a retreat also must be considered. The amount of time involved in planning and attending the retreat can reduce billable hours. Depending upon the size and geographical dispersion of the firm, the cost of a retreat may be substantial. If the retreat involves open discussions, some partners may object to the diffusion of firm decision-making. There is also the possibility that discussions on such topics as individual commitment or other personal philosophies will become volatile and fuel or exacerbate dissent.
Despite these and other potential mishaps, with proper planning, guidance, a strong retreat facilitator, and the establishment of ground rules, the benefits to be derived should outweigh the risks. Because the process is an effective method for the firm to identify objectives, appraise results and address various critical issues, considerable time and effort should be devoted to planning the retreat.

Selecting the Planners:
The retreat planners should be selected by the firm's management after considering the objectives of the retreat. A smaller firm may assign the planning function to one or two partners. Larger firms usually designate a committee of partners assisted by the office administrator. The retreat planning committee should consist of partners from the firm's major practice areas and branch offices - those who have key roles in the administrative and substantive management of the firm. By involving a diverse representation of partners in the planning process, lawyer management can reaffirm its credibility and establish a basis for consensus. In many instances this mixture of partners is politically expedient and ultimately critical to the success of the retreat. By drawing the various factors into the planning process at the initial stage, the firm begins to acknowledge the importance of issues that may be disrupting its unity.

At this juncture, the firm should determine whether the use of an outside consultant would be beneficial. If the subjects to be addressed are of a highly sensitive nature, or are of subjects which the firm's partners have limited or no experience addressing, an experienced law firm consultant may indeed be essential. The consultant is particularly beneficial in instances where a firm may wish to address such topics as organization, profit distribution, or long-term strategic planning, approaches for retiring unfunded pension obligations, reductions in staff, potential mergers, etc. The consultant can function as a leader, lecturer, adviser, facilitator, and resource on specific topics. He or she also can assist in the planning process, and in gathering and analyzing firm financial data and providing background on subjects for educational purposes.

Surveying Partners:
The next phase in planning involves interviewing the firm's managing partner and members of the executive committee and surveying by personal interview or questionnaire all or a representative number of the partners. The number of partners to be surveyed is frequently determined by the number of partners to be interviewed and the objectives of the retreat. The more sensitive the issues to be discussed, the more important it is that all of the partners be surveyed through interviews and/or questionnaire to obtain their perceptions about which subjects should be discussed during the retreat. Partners may be more willing to "open-up" and confide in an outside consultant than to discuss sensitive issues with another partner, especially if the former has a different opinion than the latter on proposed discussion issues.

Hence, maintaining the confidentiality of individual partner responses when conducting interviews/tabulating questionnaire results are a significant benefit to be inured as the result of retaining an outside law firm consultant.

While working with larger law firms, it has been especially beneficial to cross-tabulate and analyze the results of interviews/questionnaires by: (1) ages of the partners, (2) whether the partners are lateral hires or have progressed through the firm's career development program, (3) primary practice area(s), (4) office location, etc. These results, when analyzed in relation to other partners' responses, usually provide valuable insights about the attitudes of partners.
Admittedly, the interview/questionnaire survey process is time consuming. But we have found it to be a particularly effective method of drawing all the partners into the planning process. Interestingly enough, we have discovered that responses to the questionnaires/ interviews reveal that there is more ground in common among firm members than may be apparent at the beginning of the retreat planning process.

Developing the Agenda:
Once the issues raised by the partners in the interview/questionnaire are reviewed against the proposals submitted by the managing partner, the executive or management committee and/or the retreat planning committee, the planners should have adequate information to use in developing an agenda for the retreat.

The format of the retreat should be determined by the retreat's primary objectives, the participants attending the various discussion topics, i.e., partners only, partners and associates, or a combination. We frequently suggest that the retreat be held at a facility away from the office. Such a facility usually offers participants with the opportunity to socialize to a greater extent than they otherwise would in the office, and to personalize relationships and gain greater appreciation of each other.

From a planning perspective, the agenda should: include dates, times, location(s), description of the meeting format(s) [i.e., meeting of the whole, workshops, or a combination], retreat discussion leaders, participants attending the discussion sessions [i.e., partners only, associates only, partners and associates, etc.].

Economic data and other background information pertinent to the issues that will be discussed should be available to participants prior to the retreat. If a possible merger with another firm, or lateral hires are to be subjects for discussion, it is recommended that pro forma financial statements be prepared and distributed to the partners in advance of the retreat showing the likely impact of the implementation of these plans on the firm.

A retreat workbook should be published and distributed to all participants prior to the retreat. It should include the overall agenda and discussion outlines or background information about each of the selected topics, the firm's financial data and analysis, survey results and other pertinent data. This handout material serves a dual purpose. It helps prepare all participants, both leaders and partners, for their roles at the retreat and the economic data included in the workbook is beneficial in establishing a springboard for future planning.

Selecting Leaders:
Retreat leaders should be selected on the basis of their leadership and communications skills, knowledge and insights about the firm, objectivity, and ability to generate and control discussions on specific topics. Generally, partners representing various age groups and practice areas may be selected to serve as discussion leaders. Many firms intentionally assign responsibility for discussion to younger or mid-level partners to expose them to their colleagues and encourage greater participation in firm administration.

Conducting the Retreat:
The retreat leaders should understand the objectives of the retreat and be responsible for stimulating and controlling the discussions. The leaders must make every effort to insure that all partners participate and be adept at eliciting responses from any hesitant participants. If the retreat topics include sensitive issues, the planners may wish to articulate specific ground rules that set forth methods for dealing with those subjects in a manner that fosters diplomacy. We encourage having open and reasonably candid, yet respectful discussions about each retreat topic, but are proponents of the theory that any comment or criticism with a negative shading should be balanced by a suggestion for improvement.

Post Retreat Activities:
The final phase of the retreat should emphasize the follow-up of action plans agreed upon during the retreat. The executive committee or the retreat planning committee should assume the role of overseer to make certain that a written summary of the proceedings is prepared which identifies action plans agreed upon, the partner responsible for implementation or status reporting to the partners and the date for implementation of status reporting. The committee should also arrange for publication and distribution of the notes to the partners, establish follow-up procedures for reporting on the status of those action plans upon which a consensus was reached during the retreat.

The extent to which the partners are willing and able to implement policies and programs agreed upon at the retreat, will determine their level of commitment to the firm for the future.

A member of a mid-size Westchester, NY law firm that is interested in developing and implementing a new compensation plan for non-equity partners effective January 2010 requested my comments about recommending a compensation plan for non-equity partners.

Below is my response.

Non-equity Partner Compensation Plan

Question: Our firm is interested in implementing a new compensation plan for non-equity partners effective January 2010. Specifically, we are interested in your thoughts regarding how to reward those who are perceived to be over-achievers. Some are “performing quite well” but will not achieve the $300,000 book of business threshold required to become equity partner. We do not want to lose these performers. Instead, we would like to consider ways to reward them for their performance. We are not constrained by having to suggest a formula system versus a subjective system. We are open to your suggestions.

Joel’s Response: Based upon the limited information provided, it is difficult to discern the basis for the bonuses paid to non-equity partners. We suspect that means that the bonus plan is subjective and discretionary. These elements are fine, however, we wonder whether the non-equity partners perceive the bonus to be a motivating factor for performance and whether they perceive the results as fair.

As a starting point, consider the following bonus program. The plan is intended to reward non-equity partners for:

1. Hard work that results in a high level of fees collected.
2. Generating profits for the firm.
3. Originating business that can be delegated to others.

Oftentimes, we might also consider a factor for supervising work. However, based upon the content of your letter, it currently doesn’t appear justifiable to create a bonus formula for this factor. More often, we suggest this element when there are numbers of partners originating more than $1.5-2.0 million of business. At that point, it is unlikely that one partner can supervise such a significant volume of work.

The below bonus formula considers two major elements – fees collected by working attorney and fees collected by originating attorney. Each has a formula aspect to the calculation as follows:

Working attorney bonus formula

Fees collected by working attorney
less: salary, plus a 25% factor for payroll taxes and benefits
less: an allocation for general Overhead (assumes $85,000)
less: a 10% profit factor for compensation and overhead

Non-equity partner receives 33% of the result as a year-end bonus

The rationale for this bonus is to provide incentives for non-equity partners to generate significant fees from the work they perform, regardless of who generates the business. We want to encourage them to work hard and to generate profit for themselves and for the benefit of the equity partners, many of whom originate the work being performed by non-equity partners. That, in part, forms the rationale for the 10% factor above cost (equity partners should get first-dollar profits). Also, this creates an incentive and sharing of profits being generated by high producing non-equity partners.

Originating attorney bonus formula

Fees collected by originating attorney
less: fees collected as working attorney
less: any shortfall from the working attorney bonus calculation

Non-equity partner receives 10% of the result as a year-end bonus

The rationale for this bonus is to reward non-equity partners for generating business that is delegated to others to work on. That means that a non-equity partner must originate fees in excess of their own working attorney collections in order to participate in this bonus. The bonus also considers any shortfall in working attorney collections that must be overcome before participating in this bonus. This is consistent with the notion that a non-equity partner must consistently originate $300,000 in fees annually before being considered for equity shareholder (the presumption being that work is being delegated to others to perform).

Summary

Before considering alternatives or refining this approach, I suggest that you and your partners discuss the elements of this bonus plan to determine whether it is consistent with your firm’s thinking. Also, you will note that since you were especially interested in determining and allocating bonuses based upon Origination and Production, I have not included a component for the subjective factors which may be important for your firm to consider.