Deloitte Examines Law Firm Bonus Schemes

by Robin Pilgrim, LawAndTax-News.com, London

14 February 2007

A survey conducted by business advisory firm Deloitte and published on Monday has suggested that a significant number of law firms operating bonus plans are not seeing the cost benefit of their arrangements.

The survey of 43 leading UK law firms (45% in the Top 30 by turnover), indicated that bonus structures operated in the legal sector typically consist of either broad-based arrangements for all employees; or ‘bespoke’ fee-earner plans linked to individual productivity targets, such as chargeable hours.

Around one-half of participants in the survey operating an incentive scheme revealed that they have some form of broad-based arrangement, which generally pay out a fixed level of reward to all staff based on firm-wide financial objectives. These schemes are viewed as delivering the least ‘value for money’, in terms of impact on both firm and individual performance.

According to Deloitte, around two-thirds of firms operating broad-based arrangements are currently looking to review their plans. Typically, the reasons given are that they are not valued by participants, or do not sufficiently reward and incentivise outstanding individual contributions.

Around one-half of firms operate incentive structures designed for fee-earners which are linked to productivity targets. These schemes are perceived as having delivered greater value.

The majority of firms operating fee-earner plans consider them to have had ‘quite a lot’ of impact on individual behaviour. However, the survey results suggested that there is ‘room for improvement’ in recognising that increased chargeable hours should not be the only strategic focus for delivering firm success.

Bill Cohen, partner and remuneration specialist at Deloitte, commented regarding the survey that:

“An increasing number of law firms are introducing bonus arrangements which deliver significant levels of reward for outstanding levels of productivity. It is expected that the prevalence of these plans will increase over the next few years. While these arrangements can support the strategic goals of law firms, both in motivating staff to deliver financial objectives and attracting and retaining key talent from the market, it is important to ensure that these are designed to mitigate the risk of encouraging negative behaviours”.

He went on to add:

“Bonuses are not the only way to motivate and retain staff, and when firms are designing incentive structures it is important that these are considered in the context of other factors such as career progression; training and business development; and the cultural values of the firm."

However, as the levels of incentive opportunity continue to increase as a result of responses to competitive market movements, particularly within the largest law firms, the focus on bonus arrangements within the legal HR environment is likely to continue.

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