Want Low Turnover and High Profitability? Focus on Merit-Based Compensation and Benefits
My law firm turned 20 years old on January 3rd. Throughout its history, the firm’s turnover rate for attorneys has been meager and we’ve had an average retention rate of more than 95% per year. This high retention rate has assisted in attracting the best candidates, and clients enjoy having the stability of working with the same attorneys, not to mention profitability. There are several reasons behind this retention.
While proper remuneration is a major factor, It’s imperative to note that this is different than other revenue sharing programs where the entire company shares in the profits of the firm. In such a system, Harry can make as much money as Sally, despite Sally working much harder and doing superior work. Our method focuses on the individual and makes every individual their own company; how much their profit depends on how hard and smart they work as well as how effective they are at making sure the clients are happy.
Let’s take a restaurant, for example. Each server is assigned several tables. With the amount of information we have today, we can measure how long parties sit for a meal, as well as the biggest moneymaker — how much alcohol they order. Each server should know at the end of every shift how many tables they served, the amount of profit — net and gross– made, and the average time a party sat during a meal. If the server receives an additional piece of the profits when they hit specific goals or numbers, the food will be coming out faster, the tables cleaned off more quickly, and be better salesmen when they push their favorite wines. Of course, this can backfire rapidly with an overeager server, but most restaurants know how to run an excellent establishment.
This model works well for attorneys, accountants who bill for time, and anyone on a commission-based business. I can also see it working at restaurants, spas, hairdressers, and moving companies.
The Merit-Based Compensation Program — Revenue Sharing
The program is straightforward. Every attorney at the firm receives one-third of the billed time for a given client. The other two-thirds go to expenses (one-third) and profits (one-third). Attorneys receive additional compensation for bringing in business, receiving up to fifty-three percent of their billable time if they brought in the client and worked on the case. That means that the attorney would receive 33 percent of the monies for working on the case and an additional 10 or 20 percent of any funds earned for bringing in a client. Our revenue sharing program is not based on bringing in business.
When an attorney at any level brings in business, he or she receives a percentage of what he or she brings in on top of the below compensation program. It should be stressed that attorneys are not required to bring in business, and we do not have a minimum billable hourly requirement. Attorneys have the luxury of striving to make as much money as they can or have a more relaxed career by billing fewer hours.
Individualized Revenue Sharing Is Not for Everyone
No attorney has ever gone more than a week or two without having assignments — so long as the other attorneys thought their work product was at the firm’s high standards. Some attorneys are more sought out for work than others. Eventually, these stars stop accepting assignments from other attorneys and control their caseloads — because if our firm attorneys notice their talents, so do the clients.
When an attorney has not been producing quality work, however, they will have trouble finding assignments to work on as attorneys do not seek them out as collaborators. In these scenarios, which has only occurred two or three times in my career, we try to move the attorney in a different department or type of real estate law or litigation within the firm.
When Professionals Do Not Meet Their Numbers
In twenty years, I believe we have only reduced an attorney’s salary once or twice, and we do not do so strictly on the math—when we see an attorney not making their numbers, we immediately work with that attorney to understand the difficulty. Usually, there is a personal issue or a substance abuse problem. We do not give up on our attorneys, and we are willing to work with them because we believe that they will eventually make their numbers. Reducing a salary is a significant morale buster, and you must assume your attorney will be tuning up their resume.
Creating a System Where the Attorneys Trust the Protocol
Our attorneys have trust in the system. First, we have an outside accountant do quarterly reports on their numbers four times a year after each calendar quarter ends. Second, the attorneys can review their reports and numbers and have full access to the accountant for any questions. The number one issue that arises and mostly for younger attorneys is when I determine that the time spent on the matter exceeds the average amount of time for the typical assignment. I always bring the attorney in to discuss the issue before cutting time, but I have the final say as not only do we need to produce the finest product, but we need to do it cost-effectively.
Raises and Bonuses
The good news for employers is no one ever asks me for an increase. Their raise is the amount or close to the amount of the money they made above their salary in their yearly report. However, a constant discussion is whether to increase an attorney’s hourly rate. Sometimes we need to tell the attorney to raise their rates, while other attorneys want to raise their hourly rates faster than the market can handle. When an attorney bills more than one-third of their salary and the money has been collected, the excess funds become the attorney’s bonus — payable either quarterly or more typically at the end of the year.
Collections
This revenue sharing system makes every attorney technically a partner. As such, they have an incentive to make sure the hours they billed are paid for by the clients. They are given monthly reports to see which clients have not paid their bills, and we expect the attorneys to work on the collections process. This participation could include making calls themselves or working with the accounting department to remain apprised on their progress. As a rule, we do not keep clients who do not pay their bills and are quick to withdraw from a matter or case if a bill is unpaid.
Because we set up a system where an attorney’s salary and income center on billing and collections, we have to work with them to make sure the bills are paid and stop working on cases where the bills are not being satisfied. Besides, we sue clients who have not paid their bills for several months. This allows us to show the attorneys their hard work will not go to waste. All of the above has allowed us to have an excellent collection rate.
We Work for Our Employees — as Do the Benefits
“We work for our employees,” is my creed. The employees work crazy hours, working like today is the most important workday of their life—every day. I have never seen any social media site on any employee’s computer. When morale is high in an office, employees usually maintain their positivity. I do everything I can to give back to my employees and try to make them happy without getting in the way of productivity.
Walking into our office, everyone has their own office, and paralegal stations are as large as many other company’s employee’s offices. We provide food any time, all of the time, and it is always healthy. We pay for 80 percent of gym memberships to any gym preferred. Employees who arrive by nine and leave after eight receive dinner and a car home. We call our health insurance plan the Rolls Royce of plans; we self-insure dental insurance and eye-care insurance. We have holiday parties, happy hours, and the employee’s control when they want to go out as a group on the company’s dime.
But it may be the benefits never discussed in writing before that truly separate us. Employees have had severe illnesses, including cancer and heart attacks, and we stand by them with our pocketbooks and support. Unfortunately, I had to rent a bus to the funeral of one of our employee’s husbands who was shot in the head at a mall in New Jersey. We put out an award for the capture of the murderer. We had also paid for physiatrists and even car services when an employee was scared to take public transportation. We do not have mandatory retirement as we believe with age comes more wisdom.
In confession, being cost-conscious when it comes to helping employees has never been our forte; we do need to do a better job of monitoring our expenses for some of these activities. And it may be impossible to weigh the benefits of a happy employee against what you pay or judge which benefit they appreciate.
I do not expect most businesses to copy the above. But I do believe that by providing my firm’s operational plan, companies can achieve lower turnover and maximum profitability in the future.
Adam is a founding partner at New York real estate law firm Adam Leitman Bailey in New York City. Super Lawyers spotlighted him as one of New York City’s Top 100 Lawyers, and he and his firm have respectively earned Best Lawyer and Best Law Firm titles. He is the founder of Building Foundations and Dreams, a New York-based nonprofit that has given millions of dollars back into underserved communities via prestigious college scholarships, youth mentoring programs, anti-bullying initiatives, and paid internships.