March 4th, 2014 by Jim Cotterman
Recent questions regarding changing associate bonus programs prompted me to note a few thoughts for all to consider.
1. Associates generally like an objective effort driven bonus that they can control (at least to some extent) that reflects their production. The objective measure of their effort is the billable hour. The problem is that hours only recognize effort. Other production-based approaches that could be used, such as time value recorded, billed time value or collected time value are also possible, but involve attributes that the associates cannot control – assigned billing rates and partner pricing decisions, partner billing adjustments and client value adjustments and payment practices. Better programs recognize that production effort really requires a multi-faceted look.
2. When firms better align compensation practices with client interests they look to factors such as work quality, competencies, efficiency and effectiveness rather than production. This requires greater effort and judgment, but certainly improves on the process. Yet, firms still need to differentiate based on quantity. Two otherwise excellent associates (equal on all other factors), one with 1,700 hours is unlikely to be paid the same as the counterpart who has 2,200 hours. And the higher hour associate is unlikely to perceive that the pay program rewards proportional performance if they are paid the same. It is hard to eliminate this from the pay program.
3. The professional services model remains premised on highly utilized timekeepers to generate high profits. Lower effort is quite likely going to result in lower profit and lower compensation. Changing a bonus program from production to other factors should be accompanied by efforts reinforcing production expectations consistent with the firm’s business needs and desired work environment.
4. It is important to recognize that a bonus should represent performance above and beyond what has already been compensated for in the base pay of salary and benefits. To the extent that some portion of a bonus is for quantity, that portion should not kick in until a threshold is surpassed.
5. Moving the associate bonus programs beyond a math exercise provides opportunities to recognize and reward the associate for growth and development that is critical for career success. Associates should benefit from a more thoughtful overall approach to their development and pay — ie. Going beyond hours to include a focus on quality, efficiency and other intangibles is much better aligned with a longer view on development that also benefits the firm and clients.