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The Friday Five

5 Ways Your Law Firm Compensation Plan Is Failing You

By Camille Stell

A modern law firm compensation system gives you an advantage over firms that cling to outdated practices. Is your comp plan helping or hurting you?

law firm compensation

Many law firm compensation models are outdated. These models reward individual behavior and discourage collaboration. It’s even possible these outdated models put the law firm at direct odds with its associates.

What’s Missing in Your Law Firm’s Compensation Plan?

More modern law firm compensation plans will better align lawyer and firm interests. This is especially important in recruiting and retaining the next generation of lawyers, one of the biggest challenges faced by firms of all sizes.

How do you know if your comp plan needs a realignment? Here are five things a savvy law firm will aim to correct in compensation plans.

1. Failure to Provide Pay Transparency

While law firms discourage (or even threaten) employees from discussing their pay, that is unrealistic in today’s world. Many smaller firms’ associates have law school classmates working in BigLaw. These salaries are readily available for public view through sites like Glassdoor. Also, with the proliferation of online job boards and salary websites, your employees can search for comparable salaries in your region or even post their own online reviews of the firm along with salary. Rather than viewing this as disloyal, the firm’s goal should be to show up online as an employer of choice with pay that is comparable within your legal market.

One North Carolina firm is so transparent about its law firm numbers that it posts a white board in the private employee area with year-to-date financials for everyone to review. When the firm hits a new milestone, such as breaking a revenue record or an increase in intake calls, the managing partner immediately shares this information along with a financial reward to all team members.

Many current employees, and certainly the next generation of employees, expect pay transparency. Employees often do not fully understand their pay, and as a result, they may question its fairness. New York City passed the Pay Transparency Law, which went into effect in April of 2022. California and Colorado have new state laws requiring companies to provide pay clarity to job applicants.

2. Failure to Understand the Value of Intrinsic Rewards

Intrinsic rewards are those that are inherent in the work itself. Many lawyers express the desire for challenging work, autonomy and the ability to determine how to perform their work. They also express a desire to make a difference in the world or the life of a client. Do not diminish their intrinsic rewards with a workplace that does not live up to the experience. A supervising attorney who is boorish, micromanaging or dismissive will likely send an associate looking for a job that will provide a more nurturing experience.

3. Failure to Continually Communicate Performance and Compensation

It is essential to talk with your employees about compensation — and not just once a year. Ongoing communication is vital. Issues that are buried never go away, so it’s better to address them head on. And if one employee is concerned about an issue, it is likely many are concerned.

A once-a-year review ratchets up the anticipation of good news as well as the fear of bad news. Communicating with the team quarterly allows for less apprehension on their part. If they need to adjust to meet employer expectations, they have time to hear constructive feedback and implement changes.

Quarterly reviews also mean there is less chance that you have your one-on-one on the exact day that the associate bungled a project and left you feeling frustrated. Quarterly bonus distribution can be a financial motivation for associates as the reward comes on the heels of the late-night trial prep or business closing.

4. Failure to Respect Salary Negotiations

Expect employees to negotiate salary and benefits. Through various salary websites such as Salary.com, Payscale and Glassdoor, employees can identify current salaries in their geographic region, as well as within their peer group. Postings on LinkedIn or searches on Indeed allow people to see what jobs are available along with salary bands. Most legal recruiters offer salary surveys, and law school career services offices share market salary and benefits information. There is no shortage of data on the topic and even if you are not aware of it, your associates certainly are.

Negotiating salary should be a skill used by both the employer and the employee.  Negotiations should be fair and result in equitable salaries, rather than solidifying the paradigm that the most persistent employee gets the raise.

Many employees have no training in negotiation, or they do not realize there are opportunities to negotiate. Rather than purposefully keep them in the dark and hire cheap, set salary bands with the required credentials to meet the bands. Employees are typically going to find out whether you held back or treated them fairly. If your goal is a workplace of integrity, diversity and loyalty, be respectful during salary negotiations.

5. Failure to Have a Written Attorney Compensation Plan That Adapts to Market Changes

Finally, to use compensation as part of your retention strategy, you need to have a written plan that can be easily understood by your associates and recruits. An evergreen plan is one that is consistently under review and reflects changes in the legal marketplace. Make sure your firm’s compensation strategy is based on what peer firms are doing in the market, as well as understanding the benefits that attract different generations.

Attorney compensation is not a magic potion for resolving a firm’s woes. However, a modern law firm compensation system gives you an advantage over firms that cling to outdated practices.

Image © iStockPhoto.com.

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Illustration ©iStockPhoto.com

Related Reading …

“Attorney Compensation Trends: A Midyear Evaluation and How Proactive Law Firms Can Respond” by Camille Stell and Brenda Barnes

“The Best Compensation Plans Use the Law of Thirds” by Brooke Lively

“Lawyer Compensation: Taking Your Firm From Good to Great” by Camille Stell

“Top Three Talent Investments Firms Need to Make for a Successful 2023” by Wendy Merrill

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Camille Stell

Camille Stell is the President of Lawyers Mutual Consulting & Services and the co-author of “RESPECT: An Insight to Attorney Compensation Plans,” available from Amazon. Named an inaugural member of NC Lawyers Weekly “Leader in the Law,” Camille is a Fellow of the College of Law Practice Management, a member of the NC Pro Bono Resource Coordinators Network, and on the Advisory Group for the Duke Law Tech Law. Connect with Camille on LinkedIn.

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