While Canadian law firms report on an accrual basis (billings are revenue whether collected or not) in the absence of aggressive write-off policies there is a growing trend in compensation systems to ignore billings in favour of collected productivity (cash receipts).
While the above are a cross section of the reasons as to why firms are actively reviewing their compensation systems, the end goal of all compensation systems should not be lost - to reward the behaviours that align with / support the firm’s strategic plan.
While there are a myriad of approaches to reviewing compensation systems there has historically been less of a focus on the behaviours driven by these systems. Likely in large part due to:
- The level of instinctive skepticism resident in lawyers and their firms
- A preference for the concrete versus the abstract
- An innate instinct for making the simple be complex
In an effort to enable partners to get past these obstacles we have developed a straight forward two-step approach, which for a lack of creativity we have labelled the “compensation gap analysis”.
Step One - Identify and prioritize the behaviours required to achieve your strategic plan.
Again there is little rocket science to identifying the types of behaviour that most plans require in order to have a chance of succeeding. The real challenge is achieving a weighted consensus as to their priority.
The following chart can be used in carrying out Step One:
Behaviours that are Required to Support |
Ranking as to Importance |
Revenue Generation / Growing the Business |
|
Superior Earning Potential |
|
Legacy |
|
Firm Mindedness |
|
Reputational Excellence |
|
Delegation |
|
Continuous Improvement |
|
Leadership |
|
Management |
|
Respect |
|
Integrity |
|
Teamwork |
|
Compassion |
|
Trust |
|
Professional Growth |
|
Community Involvement / Investment |
|
Innovation |
|
Training |
|
Other |
While the broadest possible completion of this chart by partners is helpful to the process this is not always feasible nor practical but certainly a good cross section of the partnership should be canvassed.
Step Two - Complete the Compensation Gap Analysis
In this step we take the behaviours identified in Step One and determine where, if any place there is a gap between the desired behaviours and those driven by the current compensation system.
A word of caution when approaching this part of the exercise. It is not suffice to say that the compensation system drives (rewards) the behaviour. The partners need to be able to articulate how it drives (rewards) this behaviour. Remember if it is not transparent to the partners the odds of it even having the desired result are reduced.
The following extension of the chart can be used in carrying out Step Two.
Behaviours that are Required to Support the Strategic Plan |
Does The Current Compensation System Reward This Behaviour |
How Does It Reward The Desired Behaviour? |
Gap |
Revenue Generation / |
|
|
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Superior Earning Potential |
|
|
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Legacy |
|
|
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Firm Mindedness |
|
|
|
Reputational Excellence |
|
|
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Delegation |
|
|
|
Continuous Improvement |
|
|
|
Leadership |
|
|
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Management |
|
|
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Respect |
|
|
|
Integrity |
|
|
|
Teamwork |
|
|
|
Compassion |
|
|
|
Trust |
|
|
|
Professional Growth |
|
|
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Community Involvement / |
|
|
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Innovation |
|
|
|
Training |
|
|
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Other |
|
|
|
The fourth column not only identifies the “No” answers from the second column but also indicates the weighted priority that the partners have assigned to that behaviour from Step One.
Obviously if the behaviours in the fourth column are all “8s”, “9s” or “10s” then while some tweaking may be in order, a wholesale change out of the system is likely not necessary.
However, if there are a number of “1s”, “2s” and “3s” in this column the likelihood of successfully achieving the firm’s strategic plan are significantly reduced from the start without wholesale changes to the firm’s compensation system being implemented.
These gaps, combined with the notoriously poor track record of execution in many law firms, will increase the risk of failure to unacceptable levels. Remedial action on the part of the firm’s leadership in general and the partners specifically is imperative.