Compensation System

Client Success Story: Compensation System

Background

One of the top ten law firms in Kansas City identified several disturbing trends that did not bode well for the future. Among the more critical issues were…

• A slow but steady downward trend in revenue
• Failure to realize the full value of existing clients
• Departure of quality mid-level talent and difficulty attracting lateral talent
• A lack of both teamwork and a sense of the organization as a Firm

Assignment

ISG was asked to assess the situation, identify the root cause(s) and develop solutions. Our analysis uncovered that the pay system was not linked to contribution. It did not encourage teamwork and was viewed as inequitable. In addition, performance measurement encouraged functional silos and was ineffective as a management tool.

Two recommendations were proposed…

1. Develop and implement a pay system that focuses effort on the firm's strategic objectives. Reward individual contribution, practice group contribution, and profitable growth for the firm. The plan should be designed to encourage teamwork.
2. Develop and implement a set of performance score cards that clearly define roles, objectives, and performance expectations and which provide ongoing feedback.

Guiding principles were developed to ensure the new system would address the issues…

• Be forward looking; based on individual performance plans.
• Be flexible, not formulaic. Provide the Compensation Committee with discretion in their application.
• Develop accountability and enable the management of performance and expectations.

ISG applied the Partner ScoreCard model to develop the pay and performance measurement system. This model takes a bottom-up approach, compiling individual performance plans into the Firm's master business plan. Components of this model include:

• The Firm's business plan is a composite of the business plans from all Groups.
• Each Group's business plan is a composite of the business plans of all attorneys in the Group.
• Each Attorney's business plan is his/her commitment to the Firm consisting of a ScoreCard of objectives, goals and metrics.
• The Compensation Committee has discretionary powers and can determine the value of each Partners plan based on the Firm's composite business plan.
• The model enables an individual to set a compensation level based on personal commitment and be held accountable for those commitments.

Results

Over the past three years the Firm has added offices and attorneys through planned growth driven by the ScoreCard. Cross-sell revenue has more than doubled. The firm has moved from the 4th quartile to the 2nd quartile of the top ten firms.

Quote from the Chair

"This represents a change in the Firm's compensation philosophy from 'Divide the money' to 'Drive the organization toward the vision and mission. Some of the more obvious advantages of a prospective pay plan are its value in assisting us to achieve strategy, bring in revenue, attract laterals and manage performance.”