Law Department Management Aligning Law Department Compensation With Performance

Monday, November 1, 2004 - 01:00

David G. Briscoe
Altman Weil, Inc.

As the Altman Weil 2004 Law Department Compensation Benchmarking Survey illustrates, many of the nation's biggest companies value their top lawyers highly - and award them with salaries and bonuses that clearly reflect this assessment. But what about the rank and file? A number of lawyers on staff in corporate law departments have little idea how their salaries and bonuses are determined and which aspects of their performance are valued. In the absence of that knowledge, it is all too easy for misunderstandings to arise among lawyers and managers.

Compensation is a highly effective management tool. But its effectiveness is seriously blunted when employees do not understand how their work is being evaluated and how those judgments will translate into bonuses, raises, and other forms of compensation.

Compensation systems should reward lawyers for the skills they have developed and encourage behaviors and values that the general counsel and the corporation have deemed critical. Every lawyer's work should be evaluated in light of how it contributes to the department's success. This would seem to be an obvious concept. But in my consulting experience, I have found that the decision to increase a lawyer's compensation - and in particular to award a bonus - very often is not based upon an assessment of his behavior in relation to the law department's performance. The dollars at stake are significant and have the ability to affect lawyer behaviors. According to the Altman Weil Law Department Benchmarking Survey , average bonuses paid in 2003 were as follows:

The good news is that by making certain adjustments, general counsel can use compensation as a tool to drive both behavior and results. To achieve this, however, general counsel must make the compensation system clear to staff attorneys. And the system must be consistently aligned with the goals of client service, financial accountability, and self-management.

Base compensation parameters are generally set by the marketplace. The market values certain variables, including:

  • Technical legal skills within specific practice areas (tax, litigation, intellectual property, mergers and acquisitions, human resources, finance, and the like);

  • Knowledge and experience in particular business sectors;

  • Experience working for competitor organizations;

  • Foreign language skills and/or cultural awareness; and,

  • Proven leadership or management skills, as well as "agent of change" skills.

Supply and demand determine the value of each of these variables. The cost of living in a particular region also affects base pay.

In order to attract the best lawyers, motivate their performance, and ensure their retention, general counsel must have a compensation system that is competitive and stays that way. General counsel should benchmark their lawyers' pay annually, using at least two different salary surveys that take into account local economic conditions.

Lawyer bonuses are a completely different animal. While there is good commercially available benchmarking data on the size of bonuses awarded, that is only one factor in the bonus equation. The primary determinants in awarding a bonus should be:

  • Client Service: Performance ratings as measured by the lawyer's internal clients;

  • Financial Accountability: Adherence to budgets/spending on Outside Counsel;

  • Management / Leadership: Skills and contribution to the management of direct reports;

  • Contributions on department-wide initiatives: Knowledge sharing, mentoring, standardization of work product & procedures.

Like many managers, general counsel tend to rely heavily on subjective measures when distributing the bonus pool. These subjective factors are rarely clearly explained. As a result, lawyers often do not understand how their bonuses were determined and can be left disappointed and discouraged. Lawyers frequently tell me that they do get bonuses, but have no idea how to improve their performance in hopes of getting more. In such situations, the general counsel has missed an opportunity to focus his or her staff's attention on the behaviors that yield a world-class law department.

People pay attention to the things that can be quantified and measured. Do you know what to measure in order to improve the law department's performance? Do you know if you are meeting client expectations? Do you know where clients would like to see improvement? Have those metrics been communicated clearly and regularly to lawyers in the department? Do you have the processes and systems in place to consistently and accurately capture these measurements? Do you monitor that data more then once a year? Do you make the adjustments necessary to improve the department's (or individual lawyers') performance?

The place to begin is by defining the metrics that describe a successful lawyer. The next step is to capture the data that yields those metrics. Performance metrics will differ from company to company, but in general I have found that they fall into four broad categories. Each one can be weighted to further refine the system. (In the example below, the weightings are for illustrative purposes only.) Law departments should obviously establish their own weightings.

By using these performance metrics to determine lawyer bonuses, general counsel create a highly effective management tool. To make the metrics as accurate as possible, the law department should:

1. Conduct an annual client survey;

2. Have or develop a database to track outside counsel spending;

3. Set budgets when outside counsel are engaged;

4. Perform 360-degree (or similar) peer reviews; and,

5. Hold lawyers accountable to actively manage their direct reports.

If only the performance of individual lawyers is measured, the opportunity to improve teamwork might be lost. We have found that it is essential in today's corporate environment that an individual's performance success be tied to the overall success and performance of the law department. A client in the mid-western United States wanted to focus lawyer attention on initiatives that the general counsel believed were important to the entire law department. Past company financial performance and revenue projections enabled the general counsel to have a good sense of the total bonus pool that would be available for distribution to the law department. The bonus incentive plan that was put in place ran over a five-year period and included projects that the general counsel felt would contribute to the overall success of the department but which no single lawyer would benefit from individually. It included the following types of projects;

  • Successful implementation of a database to track outside counsel spending. Even though this was largely an administrative project that included the participation of only a handful of lawyers, all lawyers had "skin in the game" to ensure the system's rollout was a success.

  • Marginal growth in the internal cost of the law department. If personnel left the department in the year ahead, there was economic incentive to either shift the workload to others in the department and/or replace the position with a lower or equal cost individual.

  • Implementation of Service Level Agreements with key clients that established agreed upon turn-around times for different types of legal work and that tracked lawyer performance against those agreements.

The end result was lawyers, paralegals and support staff who had previously showed little to no interest in these types of projects actively participated in ensuring their successful completion.

Developing and articulating performance metrics demonstrates to lawyers the behaviors and values that are critical for success. Make no mistake though: aligning lawyers' compensation with performance metrics is hard work. Many law departments do not have the systems and procedures in place to capture meaningful and accurate data. Electronic billing systems are a great way to easily begin collecting financial data about outside counsel spending. There are lots of ways to collect and analyze client satisfaction levels. Good systems are essential to measure actual lawyer performance against the metrics. Tying salary increases and bonus distribution to lawyer performance focuses everyone on the key management issues and may even be the first steps in turning your law department into a world-class organization.

David G. Briscoe is a senior consultant with legal management consultancy, Altman Weil, Inc. For over ten years, Mr. Briscoe has worked with corporate law departments, government agencies and law firms throughout the United States, Canada, Central America and Europe. Contact Mr. Briscoe at (610) 886-2000 or dgbriscoe@altmanweil.com. Copyright © 2004, Altman Weil, Inc., Newtown Square, PA, USA. All rights for further publication or reproduction reserved.

Position Average Bonus Upper Quartile

(National) (National)

Chief Legal Officer $179,000 $238,000

Managing Attorney $46,800 $61,400

High Level Specialist $27,100 $37,600

Senior Attorney $20,200 $28,100

Attorney $13,200 $17,500