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LawBiz® TIPS – Week of April 15, 2014

LawBiz(r) newsletter

I'm writing this note from Anza Borrego Springs, just east of Indio, CA, and north of San Diego. We've been here for a few days with a group of other 'Streamers (Airstream travelers). It's been very hot, the first day over 100 degrees and the second day both hot and very windy. The wind blew the desert sand like a gale; the sand and grit penetrated into every nook and cranny of our truck and trailer. And it was very difficult to see very far in front of you.

Not only does this suggest climate change at its base ... but it also reminds one of the uncertainty of client reactions. The weather predictors gave us no clue of our climate .... not until it was upon us. To know what to expect, continue to check weather reports ... and sometimes believe them. To know how your clients are feeling, check in with them ... frequently ... and sometimes you will learn what they (and other clients) are thinking about your service. With "active listening," changes can be made that will satisfy them and build your client loyalty.

Happy Passover!

Ed signature

Compensation Models and Incentive

Choosing the right compensation model is important because compensation models are inextricably tied to incentive.

Lockstep Versus EWYK
There are two general models for compensation: (1) "lockstep," in which the firm's success each year is averaged to determine the standard rate of compensation increase for most lawyers at each level of experience; and (2) "eat what you kill" (EWYK), in which attorneys are rewarded on how much business they personally bring in. According to Bruce MacEwen in his blog on law firm economics, "Adam Smith, Esq.," the advantages and disadvantages of each are as follows:

1. Lockstep is good at building collaboration, developing client service teams, and institutionalizing clients.

2. Lockstep is bad at rewarding exceptional performers and penalizing subpar performers.

3. EWYK is good at developing new business and new markets and spurring entrepreneurship.

4. EWYK is bad at cross-selling services and promoting harmony.

Corporate Model
The problem is that both lockstep and EWYK systems depend on the same metrics, all based on the billable hour. Realization, or collecting the money you are owed, is far more important than the number of hours you bill.

If the firm wants to promote a cooperative effort that increases collections, it must change to a more cooperative corporate compensation model that depends on the success of the organization, not the success of any one individual.

Value-Driven Work
When clients perceive the work of the firm as having high value, the firm can charge more, shifting the billing perspective from time (hourly rate) to value, where the profits are significantly higher.

The corporate compensation model supports this kind of work because corporate clients are willing to pay for quality work and efficiency.

In the long run, neither lockstep nor EWYK systems are healthy. Profit-based systems are the best solution because they give everyone the incentive to work for the financial health of the firm.

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Compensation Models and Incentive

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