Compensation Factors and the Three-Point ShotDavid Cruickshank
The basketball rule that awards three points for a longer shot was a seen as a “circus shot” when first introduced in the NBA (1978). The shot did not become a significant game-changer for many years. Larry Bird would make about three attempts per game. Stephen Curry today makes ten or more attempts per game. But the use of the shot has not arisen from just the skill levels of individual players. Team tactics and data analysis have also been game changers. Teams now calculate the value of the three-pointer and deploy strategies to get more clean attempts.
What does this have to do with partner compensation in law firms? The three-pointer gives the shooter a 50% premium on a successful effort. What if we were to substitute “collaborative business development” (vs. individual) for “three-point shot”? We would reward partners who collaborate 50% greater weight for their efforts, compared to the solo business-development effort.
Could this be the game changer for firms who truly believe that “more collaboration” is essential to revenue growth?
First, a law firm’s compensation system would have to contain some weighting components, even if only for a bonus pool. Second, a firm would have to be willing to articulate specific business-development activities that can be weighed (not just a “bucket of hours”). Third, the firm would have to distinguish collaborative business-development activities from individual efforts. I reviewed this distinction in a previous Communiqué article.
We could apply the three-point shot rule to financial performance and business development. For example, a collaborative origination (where partners agree to a roughly-even split) could be given 50% greater weight in the compensation metrics. This does not mean that 50% more revenue comes in, but 50% more credit would be given.
In business development, firms constantly bemoan the lack of cross-selling. Consider these business-development performance factors that could receive a 50% greater weight:
- Partner engages in introductions, meetings and sales activities to obtain work for partners in other practices.
- Partners jointly develop and present quality pitches and responses to Requests for Proposals.
- Partners work together to manage cross-practice projects for fixed fees.
As in basketball, individual originations and business development efforts will still be rewarded. Since collaborative efforts seem to be a “stretch” for many law firms, the additional work to get the collaborative credit should get additional rewards.
Now imagine that your three-point collaboration rule has been in force at the firm for five years. As in the NBA, you may discover partner performance that is game-changing for the whole team.
Ask Gerry Riskin: Should Corporate and Other Transactional Groups Spin Work off to Litigation Teams?Gerry Riskin
Question from a Client*
While it seems to be a commonly held assumption that corporate and other transactional groups in firms spin work off to litigation teams (and that this is and should be the primary source of clients for litigators/trial attorneys), we aren’t finding any literature or research that supports this premise. Our numbers indicate the inverse – that our litigation team gets little work from other groups, but seems to make referrals internally with some frequency. So we are trying to determine if this is a problem that needs fixing, or if it’s just a shift in the way things are? Or (as is most likely the case), is it a bit of both?
Do you know of any trend data or best-practices articles that discuss the right model for referrals between practice areas – particularly litigation and trial? Any thoughts will be greatly appreciated!
Gerry Riskin Responds
The elegant study you are looking for does not exist, likely because no firm can provide accurate data that would support its findings. What kind of data are your business lawyers obtaining anecdotally from their clients to determine the extent to which they are seeking litigation assistance elsewhere and, if so, the magnitude and nature of that assistance?
You are exploring a major and timely topic.
- We are seeing the trend to avoid litigation in favor of more affordable alternative dispute resolution (ADR), and artificial intelligence (AI) is growing in relevance in the dispute-resolution world.
- A number of our clients have focused entire retreats on sensitizing their lawyers to the huge revenue potential of effective cross-selling. As I have told many clients during in-person consultations, cross-selling is highly correlated with internal marketing that sees firm constituencies garnering trust from other firm constituencies, such as: practice areas, industry groups and, of course, office locations throughout the firm.
- I am not a huge fan of motivating with a check book, but the topic also does require a peek at the compensation system to ensure that it is not creating barriers to the very behaviors you are trying to encourage.
(*Permission has been sought and received from my client to publish this question in Communiqué.)
Know Your Buyer, Know Client’s Internal ClientsMike White
At the risk of expressing pablum, KNOW YOUR BUYERS! More importantly, KNOW THE INTERNAL CLIENTS OF YOUR BUYERS! I was reminded of these insipid (yet important!) refrains during work with a client. My law firm client had three seemingly unrelated practices that all served the needs of the same particular buyer of legal services inside of a corporate environment, yet they shared none of the same clients. How could this badge of cross-selling failure happen, you ask? It actually makes sense if you understand something about lawyers, the businesses they serve, and their knowledge (or lack thereof!) of the roles certain people play inside companies. Net, net, however, it was a big failure and lost opportunity for my client firm.
Now the particulars. The three practices at the intersection of all this were my law firm client’s L&E practice, tax practice, and corporate practice. You’re probably asking yourself, “What obvious connection could exist among these three practices? What could the client stakeholders in an employment discrimination dispute have in common with the managers who count beans with tax lawyers, let alone the business managers who structure deals, alliances, and ventures?” While the matter types associated with these practices are very different, the thematic similarity lies in the nature of the internal clients these practice groups at times can share. Peeling back the onion a bit further, think about the tax practice that in part deals with ERISA and other benefits related tax issues, or think about the corporate practice that structures multi-year outsourcing arrangements involving the HR function of a client business. The intersection becomes clearer now as you see that there are occasions when each of these three disparate practice areas serve the same functional area of a business, namely the corporate HR function; now the opportunities for real cross-selling opportunities start to emerge!
For law firms that work primarily with in-house law departments, you should think about the internal clients of your own law department clients. Just as the HR department can keep law departments (and their law firms!) busy with benefits planning tax work, highly structured outsourcing arrangements, or employment discrimination cases, product development departments can keep law departments busy with IP work as well as with products liability litigation. As a law firm partner serving these clients, make sure you understand as much as you can about the activities of each functional department of your law department client’s business, and how those business activities can translate into legal work. Don’t be surprised if your immediate clients – the law departments themselves – don’t have full knowledge of what their internal clients do outside of the work they see or pass out to you. For law departments that are looking for broader ways to support their employer, you can position yourself as a consigliere of sorts by helping them take an inventory of the other operational activities of their internal clients and, in so doing, helping them take additional turf.
So get your client’s organizational chart and sit down with your law department clients so you both can begin to know your buyer even more!