Aligning Compensation With Performance

As the Altman Weil 2004 Law Department Compensation Benchmarking Survey illustrates, many of the nation's largest corporations value their senior lawyers highly-and award them 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. 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.

Every lawyer's work should be evaluated in light of how it contributes to the department's success. But 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 behaviour in relation to the law department's performance.

The dollars at stake are significant and have the ability to affect lawyer behaviours. According to the Altman Weil Survey, average bonuses paid in 2003 were as follows:

Table 1

The good news is that by making certain adjustments general counsel can use compensation as a tool to drive both behaviour and results. To achieve this, the compensation system must be clear to staff attorneys.

Base compensation parameters are generally set by the market which values certain variables, including:

  • technical legal skills within specific practice areas;
  • 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. 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 compensation 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, this 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; and
  • Contributions on department-wide initiatives: knowledge sharing, mentoring, standardization of work product and procedures.

Like many managers, general counsel often rely heavily on subjective measures when distributing the bonus pool, which are rarely clearly explained. Lawyers frequently tell me that they do get bonuses, but have no idea how to improve their performance in hopes of getting more.

The place to begin is by defining the metrics that define 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.

  • Client Service Weight: 35 per cent
  • Financial/Cost Weight: 15 per cent
  • Personal/Management Weight: 25 per cent
  • Management (if applicable) Weight: 25 per cent

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

  • conduct an annual client survey;
  • have/develop a database to track outside counsel spending;
  • set budgets when outside counsel are engaged;
  • perform 360-degree (or similar) peer reviews; and
  • hold lawyers accountable for actively managing their direct reports.

If only the performance of individual lawyers is measured, the opportunity to improve teamwork may 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.
  • 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 turnaround times for different types of legal work and that tracked lawyer performance against those agreements.

The end result was lawyers and support staff who had previously showed little interest in these types of projects actively participated in ensuring their successful completion.

Aligning 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. 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.


David G. Briscoe is a senior consultant with legal management consultancy, Altman Weil, Inc. Contact Mr. Briscoe at (610) 886-2000 or dgbriscoe@altmanweil.com.

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