The Estrin Report is a great resource for paralegals and other legal support professionals.  The March 22nd post quotes a Maryland Daily Record article where an attorney has been suspended twice - TWICE - for mismanagement of client trust funds.  He never took one penny, however.  Instead, he was the victim of two consecutive bad hires.

The Maryland solo practitioner hired a paralegal, among other things, to manage a client trust account.  The paralegal, without oversight, embezzled nearly $150,000 before being caught.  After being disciplined, the attorney hired another paralegal to "clean up the financial mess left by " the predecessor.  This one took over $170,000 from his clients.

The attorney complained that he had several hundreds of cases he managed and was in court a lot.  "You’ve got to delegate things. You can’t be there to sign every check.”   

Whether these were paralegals or not isn't the point.  What is noteworthy is the exposure attorneys have, especially in small firms, when trusting unmanaged staff to control firm finances.  Embezzlement is more common than we'd like to believe.  (Admin charged with embezzling over $200,000 from firm; Bookkeeper embezzles over $400,000 from firm;  New Orleans firm dissolves after Chief Financial Officer embezzles $2 million;  Office Manager embezzles $700,000 from firm;  Bookkeeper accused of taking over $4.3 million from escrow accounts)  

Ignorance is no defense.  You can't spend all day watching your staff either.  “You’ve got to have some trust in your employees,” the aggrieved attorney said. “You pay them good money.”  In his case, you'd think a little skepticism would have been prudent.

What are some things that can be done to avert a would-be-embezzler?  Tom Collins wrote the following in his September 6, 2006 post:

First, select business software with built-in audit trails and controls. Remain alert to the reality that it can happen in your firm. Keep your eyes and ears open. Obtain professional assistance to implement appropriate internal controls including segregation of duties. Insist that employees take vacations on consecutive days under an arrangement where others assume their duties. Do not let a crisis take over and circumvent normal controls and procedures. Budgeting, comparative financial results, and detailed review and questioning of monthly financial statements are an essential function of law firm management and play a vital role in protecting and preserving the assets of the firm.

Scott Barrett wrote an article in 2004 that addresses ways to avoid being a victim of embezzlement.  Read it by clicking here.

 We have begun taking submissions for the 2008 Law Firm Economic Survey.  If your firm is interested in participating, please contact Brian by clicking here.

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The 5 key performance indicators all law firms should measure are:

• Rate
• Realization
• Utilization/ Productivity
• Leverage
• Margin

This week each day I will focus on one of the above. Today the focus is on realization.

Realization is a word with many meanings. Depending on what you want to see, it could mean the percentage of what was billed from what was worked (billing realization), the percentage of what was collected from what was billed (collection realization), or the percentage of what was collected from what was worked at standard rates. Further, you can look at realization on the basis of standard rate or negotiated rate (standard rate realization). This article will take a look at billing, collection, and overall realization from a performance measurement perspective. For some previous posts on realization, please read What Is Realization?, Measuring Law Firm Collection Realization, Collection Realization In The Law Firm, Law Firm Standard Rate Realization, and Role of Realization in the Law Practice Business Model.

Why is it important to track realization? The answer is efficiency. How efficient are you in converting work to cash? Each percentage point lost represents money out of the pocket of the firm. Firms that don't track realization will only find success by accident. Tracking realization at every step in the process will help your firm become more efficient and thus more profitable.

Sometimes referred to as "accrual" realization, billing realization looks at what work you performed at your standard rate and compares it to what you bill. Your standard rate is the rate you would charge a new client before any negotiated discounts. Some only want to look at negotiated or actual rate that you are charging to a client and that is fine, but you should also look at what percentage you are billing based on your standard or, as I call it, your "aspirational" rate. That way you can measure the difference between what you should be receiving based on what you believe you are worth and what you are actually getting.

Let's say your standard rate is $250 per hour. For client ABC, Inc. you and your associate perform 5 hours of quality, best in-industry work on the DEF matter. Because ABC gives you 200 matters per year as part of the guaranteed 20% of their workload for your region, you have provided them a nice 30% discount on the rate. $175 x 5 hours gives you $875 of billable work. However, once you see the pre-bill, you notice that 2.5 hours was spent by your associate "reviewing draft of status letter". You aren't going to make your client pay 2.5 hours for this, so you write it down to .5, reducing the bill by $350. Your bill the client for $525.

What is your billing realization? Based on your standard rate, you would have charged $1,250. This is your standard value for the work performed. There is a $725 loss from the negotiated rate and write down. Your billing realization is determined by dividing your billed amount, $525, by the standard value, $1,250. Your billing realization based on standard rates is therefore 42%. If you based it on your negotiated rate, your realization is $525 divided by $875, or 60%. Either way it's money lost due to inefficiency.

Ok, so you have billed $525. The invoice reaches your client, they notice a charge for .2 hours with a narrative "Telephone call with Ed regarding his paternity test - advised he should start saving for child support." Since the matter for client ABC, Inc. was related to a breach of contract claim, they requested that the time related to the erroneous entry be taken off the bill. You adjust the bill $35 and $495 is promptly paid. Your collection realization is 94%, another hit on your profits due to a lack of attention to reviewing the bill; ie, inefficiency.

Overall realization based on standard rate would be $495 divided by $1,250, or 40%. Overall realization using your negotiated rate is $495 divided by $875 or 57%. You won't make a living with these numbers. However, does any of the above (except maybe the reason for the post-bill adjustment) look that out of the ordinary? The only difference is that I am looking at realization at a per invoice level rather than a global level.

According to the 2007 Law Firm Economic Survey from LexisNexis, billing realization has a relationship to increased partner income while collection realization doesn't. Though overall realization is preferred, tracking billing realization appears to have the most impact on revenue. The charts below illustrate this:

The first graph represents cash basis, or collection realization. It is split up by quartile, the first quartile representing the best performing firms in terms of per partner income and the 4th quartile representing firms with the lowest per partner income. Note that there is no link between cash basis realization and per partner income. In fact, those in the 3rd quartile had the best collection realization, while the best performing firms in the 1st quartile were over 3 percentage points less. In the second graph, which represents billing or accrual realization, there is a clear correlation between the realization percentages and per partner income, regardless of whether you compare based on standard rates or negotiated rates.

Ultimately, the best practice would be to track overall realization based on your standard rate. However, the above provides some insight into where most of the money is being lost. It appears that if you can get control over pre-bill adjustments, your revenue will increase as will per partner income.

Ways to increase realization:

• Don't negotiate your standard rate away without volume guarantees.
• Pay attention to mark downs. If they must happen, make attorneys note a reason. If it is correctable, correct it so you can decrease mark downs.
• Bill. WIP is inventory and loses value every day it sits on the shelves (your desk).
• Don't wait months for a client to call and try to negotiate down their bill. Stay on top of receivables.
• Be efficient in how you work, how to bill and how you collect. Modify your processes to the extent you already have them. Develop a process to the extent you don't. Measure your performance and prepare to adjust if your process isn't yielding the results you desire.

Along with other key profit drivers, realization is something you should track regularly. Utilizing technology will help you achieve your goals. Tools such as Juris® Active Information can alert users when their realization goes below their desired percentage. Benchmarking tools such as Lexis® Insight can compare your realization numbers to your peers. Measure against your own goals and the performance of your peers to gain insight as you how your firm performs against others in the marketplace.

There's no reason law firms can't earn more even in a rescessionary economic cycle - unless they don't measure performance. Don't leave the financial state of your firm to chance. Measure your performance.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

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The 5 key performance indicators all law firms should measure are:

• Rate
• Realization
• Utilization/ Productivity
• Leverage
• Margin

This week each day I will focus on one of the above. Today the focus is on rate.

For a primer, look at some prior posts related to rate here, here, here, here, and here. The importance of tracking rate shouldn't surprise anyone. However, I run into firm after firm who either don't increase rates annually or don't track effective rate. How can you improve performance if you don't measure it?

Source: Timothy McMahon (http://www.inflationdata.com)

The above chart shows the trend in inflation since 1990. Failure to increase rates annually at the rate of inflation during the 1990's wouldn't have as much of an effect on profits considering the economic boom the US experienced along with low inflation. That changed in 2002 and there has been a steady increase in inflation for the past 6 years. In fact, as of December, 2007, the consumer price index (which includes the price for food and oil) was at 4%. If you are not increasing your rate at least by the percentage of inflation, you are working for less money every year. It isn't known where inflation will be at the end of this year, and some are forecasting that this year will see some lower inflation, but the point isn't to predict lower profits when inflation is higher or higher profits when inflation is lower - it is to keep up with the rate of inflation and be certain your rate increases take it into consideration so that you are immune to the index altogether.

 

Inflation is a starting point - other factors such as relative expertise in a given area of law can also factor into rate. In your retention agreements, you can provide cost predictability to your clients by treating it like one would a long-term lease. You factor price increases into the agreement so that they know the percentage increase each year. In volatile times (such as the last few years), it may be better to treat it more like a mortage, setting a range of increase that won't go beyond a certain ceiling. Then annual increases can meet margin goals as well as inflation.

 

Measure the effective blended rate consistently so that you know if the rate is going up and down throughout the year. Why is this important? Assuming that your firm has established rate goals for the year, the blended rate (the combined average of all fee earners' rates) should be known. If the rate is decreasing, then something is wrong. The most likely culprit is pre-bill or post-bill adjustments. If your attorneys are devaluing their work, there needs to be a reason - otherwise, you will be sending a signal to the client that you are over charging them and adjusting to make it more fair. This is not the way to make it easier to raise rates in the future. Further, if you are trying to meet a financial objective, write downs and mark offs go directly to the bottom line and put you behind in reaching your financial goals.

 

The effective rate is calculated after the invoice is paid. It gives you the actual value of your services. In the report below, productivity, realization, and rate are tracked. The image below it is a blow up of the rate section of the report. In it you can see the value of the hours worked at your standard rate, your actual or negotiated rate, the billed rate after mark down but before invoice discounts, the billed rate after discounts, and the collected rate after post-bill adjustments. It is broken down both by both worked hours and billed hours.

 

In the above, you can instantly see that the time keeper is writing up his negotiated rate at pre-bill edit to conform with his desired standard rate. One way you achieve this (ethically) is by the use of firm-wide standards for the cost of a task. You must determine the time it takes generally to do the task and then price it accordingly. If you have efficient attorneys that can do the task in less time than the standard, he/she may write up the bill to conform (likewise, if it takes longer, you must write it down). This way an efficient attorney may mark up his time and thus increase his effective rate. For those who advocate value billing, here it is at work. The better value goes to either the efficient attorney or the client of the inefficient attorney. Tracking effective blended rate regularly will allow you to determine whether your attorneys are being efficient in their processes and if they are on track to reach the financial goals or not. If they are not, you can act on it well before it becomes an uncorrectable problem.

At the same time, the above time keeper may be increasing his rate unethically, which may lead to undesirable consequences (firm reputation as well as ethical violations may be the result). Without regular reporting on the above, you won't have the information to know which is occurring.

Price increase is one factor to consider in increasing effective blended rate. It isn't the only factor. Many firms, especially those who work in corporate defense litigation, have traded high rates for volume. In practice areas where there is not a lot of price flexibility and the rate is usually heavily discounted to get the business, the key is to have an efficient workflow process and be very wary of mark downs. In some firms, the rate can absorb an inefficient operation. In corporate defense, you may not have that luxury. On top of that, more and more corporate clients are levying restrictive billing guidelines that can seriously affect effective rate. Not only can non-compliance with client billing guidelines delay payment, it can lead to nonpayment of certain tasks altogether.

Improving workflow efficiency is the easiest way to increase effective rate. However, expectation of reciprocity from a client who expects you to provide quality service at a reduced rate wouldn't hurt. Why is it that a client can expect you to lower rate for their volume when you are not guaranteed any volume from them? In my opinion, not only would I work to increase rate, I would tie the frequency and level of the increase on the volume the client provides. If the client is willing to guarantee a certain percentage of their work for a given year, I would be more willing to hold rates steady or only increase them by the annual rate of inflation. Don't be afraid to treat your corporate clients like a corporation. They are treating you like a business. Although restrictive, billing guidelines provide a measure of cost certainty by the tracking of costs associated with a task. They know what it costs for you to do your work. You better know it too - and make sure you are making a profit from the work you do.

Morepartnerincome.com is sponsored by Juris®. For information about Juris products and services for increasing law firm performance and partner income contact Juris National Sales Center:

877/377-3740, e-mail info@juris.com or go to www.Juris.com.

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How phone calls are handled either works for or against you, and that goes for both ends—incoming and outgoing.

It is important enough that the ABA publication Law Practice devoted two pages to the subject in April 2007. For my money, the most important advice from author Dan Pinnington is to call your office and find out how calls are really being handled. As Dan says, you might be surprised by what you hear.

Now remember this is likely to be a prospect's first brush with how your firm works. From the caller’s perspective, if you can’t handle a call correctly, professionally and responsively, how can they expect you to handle their work differently?

As for established clients, most now feel they are better served if they can call your direct line. If you provide your clients with a direct number and then hide behind voice mail because you don’t want to be disturbed, you turn an intended good thing into an actual irritant for your client. Pinnington advises using a phone with a call display. He writes, “Many lawyers who had thought they would use call displays to avoid calls….find they actually take more calls because knowing the caller’s identity allows them to understand how much time will be involved before they pick up the phone.” He also says “…that four seconds between when the name pops up and you take the call magically seems to get you in the right frame of mind."

As for calls received by the receptionist, always give callers the option of leaving a traditional message or voice mail. He warns against asking callers for their identity prior to giving them the option of leaving a message or voice mail. “If you don’t take a call after a client has been asked who they are, you create the impression that you are avoiding their call.”

For those calls that do go to your voice mail, Pinnington provides the following advice:

1. Open with your name and title so the caller is sure they reached the correct mail box.

2. Update the message daily to include details of your schedule.

3. Indicate whether you’ll be checking voice mail or when you will be back in the office.

4. Always give the caller an option to transfer to a live person.

5. Encourage the caller to leave a detailed message.

6. Let the caller know when they can expect their call to be returned—after noon today, within 24 hours by the next day, etc.

Test your own voice mail system. Is the message clear? Are you speaking too fast? Are you limiting the caller to a 60-second message rather than getting the full details that would make your job easier?

As for the times you are the caller being asked to leave a voice message, Pinnington says the most important point in his entire two-page article is his advice that you “Clearly and slowly state your phone number. …Most people say their number at speeds approaching warp5, with the result is that it is unintelligible. Slow down and take a deep breath between each digit. Okay maybe not quite that slow, but you get the point.”

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income contact Juris National Sales Center at 877/377-374, e-mail info@juris.com or go to www.Juris.com.
 

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Both Larry Bodine and David Maister have written about the firm of Levenfeld Perlstein PC and its creative chairman Bryan Schwartz.  I haven’t met Mr. Schwartz, but if you are looking for someone who has modified their compensation approach away from an emphasis on individual production to one designed to promote team work, I would give Bryan Schwartz a call.

 

While morepartnerincome stresses the importance of balanced financial management, we have also emphasized the importance of law firm culture. I define that as a common set of beliefs. It comes from the partners getting together and agreeing on the things they believe in. Then they must communicate those beliefs to the entire team and they must do it repeatedly and often.  It goes without saying that the partners have to walk the walk as well as talk the talk.

 

Let me use Bryan Schwartz’s own words. “…and most importantly, firm leaders must create a culture that energizes the lawyers and gives them a reason to stay with the firm. It makes a big difference in profitability. An inspired group of people can make a lot more money than people who are trying to bill a lot of hours." ….. "Our lawyers are the most competitive people, but it’s a culture where everybody helps the other person, they don't compete against each other."

 

Back to the compensation issue:  David Maister reported on a communication he had from Schwartz describing some of the discussions at the firm’s recent retreat.  Maister had apparently spoken earlier at the same event.  Schwartz wrote, “We talked about compensation and our subjective plan. You set that up beautifully. We spent 10 minutes on that - a miracle for a law firm. I believe people are realizing that in the absence of subjectivity, which we currently employ, we become a mercenary firm, which we do not desire to emulate.”

 

I could not say it better and it is worth repeating:” …in the absence of subjectivity…. we become a mercenary firm”.

 

I encourage you to read or reread my earlier post How to Fix Your Compensation Plan.

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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I need your help as a reader of morepartnerincome.com.  A reader sent me the following e-mail:

"I just re-read Why Law Partners Hoard Work? and I wonder if you have clients who have implemented this type of system, and exactly what kind of weight they attribute to each category mentioned, and exactly how this approach has been applied in practice, and with what success.  I am particularly interested in the idea of limiting origination to 18 months, and substituting a measure of associate work supervised."

 

If you are among those firms who have taken steps to fix your compensation plan, let me know by adding a comment or, if you prefer to remain publicly anonymous, send me an e-mail at morepartnerincome@juris.com and I will put you in touch with the above inquiring partner.

 

Why do compensation plans need to be fixed?  Most midsized law firms stuck in a lower per-partner income box are there due to their existing compensation plan.  Here is the dilemma:

 

·         Partners hoard work rather than delegate because they make more money by doing the work themselves.

·         The law firm underutilizes their expensive income-producing assets, associates, by 25-30 percent.

·         The law firm doesn’t have enough associates to create the leverage needed for top per-partner income performance.

·         Because partners are “doing the work,” they are not bringing in sufficient business to use the associates they have or to build leverage by adding more.

·         Because partners are “doing the work,” they don’t take the time to mentor associates in order to increase their capability to handle work independently.

The ABA Law Practice Management Section has just published Jeffrey L. Nischwitz’s new book Think Again!: Innovative Approaches to the Business of Law. In it he details the destructive impact of the “every person for himself or herself” mentality of the typical law firm business plan.

 

·         “Eat what you kill” plans fail to create or nurture loyalty. Attorneys quickly learn that their success depends on their individual efforts and results, not the firm’s.  They are “hired gun slingers” who are inclined to “sell their gun” to the highest bidder.  The best people leave.

·         Attorneys are reluctant to follow instructions unless those instruction best fit with the compensation system.

·         There is a lack of team thinking and support where the biggest victims are cross-selling and client service. Attorneys “actually take affirmative steps to keep other partners away from ‘their clients’” with devastating impact on income.

·         Lifetime origination credit isolates clients from effective development and “to the financial detriment of everyone in the firm, most of the work never comes in the door.”

·         The “once my client, always my client” attitude works as an effective bar against any cooperative marketing and business development efforts.

·         Even worse are plans that give a single partner credit for establishing a referral source relationship where all credit for referred business from that source is credit to the initial originator. The protected source becomes a wasting asset, assuring “that the firm will consistently and repeatedly under perform, with countless opportunities being left on the table and likely picked up by other firms.”

·         As for mentoring, Nischwitz reports that he repeatedly hears attorneys say they just do not have the time or incentive to help others. “How unfortunate!  The firm’s best source of improved results is not implemented because the compensation system does not value such efforts”.

For Nischwitz, fixing your compensation plan means that it must base the incentive portion of compensation on three components:

o        What you deliver

o        What you brought in

o        Total firm (team) results

Nischwitz would not leave associates out of the process.  He wisely notes that associates “come to the table with the same internal drives and ways of thinking.  Partners do not develop a ‘what’s in it for me’ thought process upon achieving partnership—it is fundamental in most people.”  Thus, the incentive portion of their compensation should similarly be tied to firm overall performance in some fashion as well as rewarding for bringing in business and doing the work.

 

Of course the devil is always in the details.  Frankly, I favor a system where every employee and member of the firm has a base compensation amount together with an incentive portion. Why not base compensation 100 percent on individual performance? As Nischwitz notes, a pure incentive arrangement fosters a shared office mindset devoid of firm loyalty. I also favor keeping the incentive portion as simple as possible.

 

You can find some ideas about setting base compensation levels in the pervious post titled Law Firm Value, Partner Compensation and Continuity.  For other insights on a balanced approach to compensation together with an example plan, read the Managing Partner Advocate article Moving Beyond Eat-What-You-Kill Compensation Plans which begins on Page 7 of the June 2006 edition. 

 

Fixing your compensation plan doesn’t just improve long-term firm results; doing so has an extraordinarily favorable impact on per-partner income and wealth.  Firms that build leverage and fully utilize their associates make seven times the per-partner income of firms that do not.  Firms that do, survive.  Firm that do not, don’t.

 

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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David Maister was asked how one sustains a personal service organization (that is what most law firms are) after the founder and key people are gone.  He found a way to drive home the key in just 20 words.

 

“……the founders can either extract the maximum sales price or leave behind a vibrant institution, but they can’t do both.”

 

Partners are business owners and deserve to receive the value of their ownership shares upon leaving the firm.  Some extract payment through continuing origination credit or some other form of compensation.  Another approach is to follow the morepartnerincome suggested alternative for valuing partnership shares, an approach similar to that followed by closely held businesses in the commercial world.  Regardless of method, the departing generation must, as David Maister says, “leave money on the table to hand the business off to the next generation.” 

 

Backbreaking unfunded obligations usually do not stand.  The remaining partners dissolve the partnership, go their different ways, or move across the hall.

 

Maister makes three other important observations in his post, Passing It On:

1.       The brand must be solid

2.       Successors must be groomed

3.       Power must be shared

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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Hard work and long hours limit the income of law firm partners. How can that be? While it may appear counterintuitive, it is really simple. The owners of a service business make more money when they can leverage off of the work of others. In order to do that, you have to have the work for them to do. You have to give them the work to do. And, you have to find, hire, and train them.

A new survey of mid-sized law firms is confirming what we frequently found when working with individual midsized law firms. Partners are logging more billable hours than their associates. Law firm partners are hoarding work rather than handing it off to others. Rather than bringing in new business or training others, they are piling up their own billable hours.

It gets worse. Not only are many mid-sized firms not fully utilizing their existing associates, but partners are not investing enough time in business development or recruiting and mentoring talent. Where AmLaw 200 firms have about three associates for every partner, midsized firms average only a 1 -1 ratio.

The result is what you would expect. Midsized firm partners make less income than their counterparts in larger law firms.

If working long and hard hours actually reduces income, why do partners do it? Why do they hoard the work?

Why shouldn’t they? If a partner’s distribution is based largely on their individual production, what else would one expect?

It is time to rethink partner compensation in the midsized firm. Consider rewarding partners for nothing more than a hygienic level of production. Additional rewards would then come from bringing in new business and handing off work to others. Consider the merits of a compensation system that includes the following four elements:

1. Personal production up to a maximum hygienic level

2. Bringing in new business (based on fee revenue for the initial eighteen-month period)

3. Associate billings on clients’ work under the partner’s control

4. A subjective element based on relative performance in such categories as:

• Recruiting
• Mentoring
• Associate survey
• Administrative staff survey
• Public relations
• Playing by the rules
• Client satisfaction surveys
• Etc.

Why limit the new business reward to eighteen months? The objective is to keep generating new business, not to compensate for revenue the firm already has. Compensation for retaining existing business is earned by performing as the control partner responsible for work supervision and the client relationship. A fifth element can be added, if needed, to encourage a partner to hand off control to a new or different partner. Similar to origination, the partner handing off work could get origination equivalent credit for the first 12 to 18 months following hand off.

By limiting earnings for personal production to a “hygienic” level, partners will no longer be incensed to pile up billable hours at the expense of making rain and devloping the skills of their associates. The short eighteen-month origination credit period keeps the pressure on “new” business development rather than continuing compensation for prior successes. Origination credit under the above approach is never handed off. Once someone has been paid for new business, it becomes property of the house. By basing compensation on associates' fees, the emphasis is shifted from personal production to developing and using the professional skills of associates.

The firm gets a bonus out of the new approach. The firm gains a farm team out of which the future partners and leaders of the firm will come.

Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
 

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www.morepartnerincome.com celebrated its one-year anniversary this month.  The first post was March 16, 2005.  The number of page views has grown every month from its beginning to last month’s volume of 45,000 views –and it is still climbing.   This month’s volume is on track to exceed 50,000 views serving over 15,000 distinct hosts.

 

It has been my pleasure to share with readers the collective experience of the Juris® professional services team.  I have always been a little disappointed by the volume of reader comments attached to each post, but from the readership volume and the private e-mails I have received from law firm managing partners located across in the United States and abroad, readers have found the information helpful.  

 

Comments to posts are always welcome.  You are also welcome to suggest a subject or issue you would like to see addressed on the blog.   E-mail morepartnerincome@juris.com.  If I use your suggestion I will send you a money green morepartnerincome.com hat for your next partner outing.  

 

Morepartnerincome.com is sponsored by Juris, Inc.  For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.

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Playing off the lyrics of a Randy Newman’s song, I once wrote that "blended rates got no reason”. Blended rates never made sense to me. I just didn’t understand how they could benefit anyone.

 

I was recently in a law firm where some partners tended to make significant use of associates while others attorneys tended to horde the work. Some of the firm’s clients were paying for associates to do associate work. Others were paying partners to do the same level of work. The motive for hording work in this case was another illustration of the untended consequence of a compensation plan. The originating attorney who did his or her own work made more money under the compensation formula by not delegating their associate-level work. The client was incurring a higher cost than might have been necessary. The attorney doing his own associate-level work was not out stirring up more business. The firm had unutilized associate time, etc.

 

In this case, proposing a blended rate might add encouragement for the attorney to move work to the associate and spend more time looking for higher-valued work. The firm would increase its effective rates for associate work. The client would experience a lower cost. The attorney would devote more time to rainmaking. Everyone would be a winner!

 

Of course, an even better alternative would be strong law firm management. Without that, one has to constantly tweak the compensation formulas and pricing strategies to encourage good practices and discourage poor ones.
 

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