A Survival Guide for Legal Practice Managers

A Survival Guide for Legal Practice Managers

Effective pay for performance strategies

Monday, January 13, 2014

by Darren Sprod, Regional Manager, Halogen Software 

Is the time coming when law firms will move away from their traditional methods of compensation based on years of experience, position and billable hours to look more like corporate compensation structures? 

Yes – there is evidence that many firms in Australia and worldwide, feeling the pinch of lower revenues, are seeking alternative methods of compensation. Pay-for-performance, commonly used in the corporate marketplace, is a strategy that is beginning to get traction according to legal recruitment firm Mahlab.  

So, if yours is one of the firms considering or undertaking a pay-for-performance scheme, here are a few pointers on how to make sure it drives effective performance management.

Set clear standards for effective performance management

If it is true that you get what you pay for (and it generally is), make sure that you are clear on what gets rewarded in your firm and the intended as well as unintended consequences. Sure, billable hours are important performance indicators, but if emphasised at the expense of everything else, might it tend to undermine team efforts?  

Likewise, if everyone is focused on bringing in new clients because that is the basis for their rewards, what is the incentive for providing the good customer service (not always billable!) to retain the ones you already have? Who will want to spend time mentoring new associates? Will good marketing and business practises that may not have immediate rewards be sacrificed on the altar of billable hours and new clients? And how will rewards be allocated to those in roles that are not directly client-facing?

It makes sense to take the time to think through the skills and behaviours for various roles that are success factors for your firm both now and in the future. These are the competencies you want to hire for, develop and reward.  

Goal-setting is another useful exercise for establishing standards to guide effective performance management throughout the year and serve as the basis for evaluation and pay-for-performance rewards. Staff and associates should work together with those who manage them to set SMART (specific, measurable, achievable, relevant and timely) goals that support the business strategy. This is particularly effective for those who are managed by multiple people and can help with the common problem of juggling multiple priorities.

Once the performance standards and/or goals are established, observe progress and coach for success throughout the year – not just at performance review time.

Evaluate performance using multiple sources

Now the crunch comes – time to rate performance and assign compensation and bonuses. Effective performance management requires a thorough and objective evaluation of performance against the previously established standards. In other words, you have laid out what you expect to see – now you have to set rewards based on whether and to what extent they actually occur.

Rarely can one evaluator get a thorough view of the person under evaluation.  Seek input directly from the person being evaluated – encourage them to keep track of their goal accomplishments and write a summary of their performance. Invite input from those who work with the person in a variety of roles. Multi-rater input, commonly known as a 360 degree review, can be useful for gathering a more complete picture or an individual’s performance.

There are some caveats to 360 degree reviews, though, especially when they directly impact performance appraisals and compensation. People may be reluctant to be open and their input could be coloured by their personal relationship with the one they are evaluating or fear of reprisal. These drawbacks can be mitigated somewhat by using an outside firm to gather anonymous input from a large sample.

Constantly seek transparency

Performance management, especially when linked to compensation, is an emotionally-charged process.  When conducted unevenly or when not communicated properly, people may feel they are being treated unfairly. Generally, the more open and transparent the process and tools are and the better equipped and prepared evaluators are, the more effective and accepted the performance management process will be. 

When people understand clearly the expectations for performance, are given feedback and coaching along the way, and are evaluated objectively based on a well-rounded view of previously set expectations, there will be no basis for complaint among poorer performers. Transparent and effective performance management and pay-for-performance practises will be powerful tools to retain and encourage your top performers and enhance the behaviours that matter most to your firm.

About our Guest Blogger

Darren SprodDarren Sprod is a certified Human Capital Strategist and Regional Manager at Halogen Software.   In his role with Halogen, Darren helps HR teams improve their talent management processes to achieve measurable business results. 

Halogen Software offers an organically built cloud-based talent management suite that reinforces and drives higher employee performance across all talent programs – whether that is recruiting, performance management, learning and development, succession planning or compensation.

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