How to Use Bonuses for Rewarding Staff

Published on 5/7/07

A coaching client recently called me with a good problem.

The office administrator of his firm was someone who, as the lawyer said, “takes more initiative than anyone I’ve ever had around here.” That ranged from volunteering to making collection phone calls on overdue accounts, to using personal time for reading one of my books on law firm management.

The lawyer wanted to reward this person with a bonus, but had no idea what to do.

If a lawyer takes the initiative to win a new client or begin a new practice area, the “bonus” comes from the increased revenue and profitability generated by the lawyer’s own efforts.

Staff persons, by contrast, rarely have any direct influence on the outcome of firm revenue and expenses. If someone has no control over a particular activity yet receives a bonus because the organization overall is doing well, it typically creates one of three responses:

• The bonus doesn’t register, because the staff person cannot relate personal effort to it.

• The bonus creates a feeling of entitlement, because the staff person has nothing at risk.

• The lack of a bonus, if firm performance slips, creates disappointment and cynicism, because the staff person could not control the outcome.

My suggestion for the best approach to staff bonuses is the creation of a pool that reflects the firm’s year-end financial statement.

One approach is to identify the net profit after all expenses and all attorneys are paid, and then assign staff persons a fixed or variable percentage of that pool.

Another approach is based on revenue, by assigning revenue increase to the pool and then paying bonus percentages from that ... which has the advantage that most people understand the concept of revenue and believe it cannot be “manipulated” as can profit.

Of course, the firm could prefer not to be tied down to a specific formula, instead saying that because performance this year exceeded a three-year average, individual staff efforts are being rewarded by cash payments of varying amounts.

Measurements for success must be clearly defined so that the staff person understands the criteria by which the firm will make its evaluation. These are typical elements:

• If there are certain organizational criteria for success - profits per partner, revenue growth, number of clients - it must be clear what contributions to the outcome are considered to be within staff control, and which ones are not.

• The staff person must be told specifically what he or she must do, and how performance of those responsibilities will be evaluated to qualify for a bonus.

• There should be precise definition of the distinction between the staff person’s base level of compensation and any bonuses or other additional compensation.

Clients increasingly reward lawyers for having “skin in the game.” Lawyers who take the same approach to staff should be clear on the standards for and nature of the reward.