1/ What's wrong with #lawfirm compensation? Let @jordan_law21 count the ways.As predicted 🔮 (by me, about what I was going to do 😇), a #tweetstorm. First the link: law21.ca/2018/09/how-co…
2/ Next, my favorite #micdrop 🎤 quote: "law firms incentivize their lawyers to act in ways that are counter-productive to lwayers' happiness, clients' satisfaction and the firms' effectiveness." and 💥goes the 🧨-- more #truthbombs follow.
3/ 💯 agree that legacy compensation systems (and the attendant infrastructure of #tech, #process, #policy, governance as well as resulting #culture) emphasizes #lawyer effort over #client outcomes (namely, the billable hour). BUT I add here: what would be a better #alternative?
4/ After decades of critique on the negative impacts of the billable rate model, we still call everything else "alternative" fee arrangements. no viable model has emerged to displace it. Why? I have a theory 🤔 (bc of course I do.)
5/ Part of it is vicious cycle. It is HARD to operationalize, at scale, any other model than the one for which the org is designed. So often alternatives die on the vine... simply bc it is more risky + takes more work, by the #client AND (so many ppl) at the #firm.
6/ Part of it is that the #firm often operates MANY different types of work, wvaried staffing, pricing, cost structures. Law firm CFOs work to strip these variations away, to normalize all contribution across the partnership. To create perception of fairness in distribution.
7/ So they revert to the hour ⏲️ as the basic unit + assign a rate 💰 for weighting the arithmetic. This erodes #fidelity to the point where the books no longer reflect the performance of any actual biz unit. Aiming for perceived fairness only creates a fictional version.
8/ Moving on. @jordan_law21 points out current comp systems reward individual achievement over collaboration. Why? Again I think bc rewarding collaborative activity = harder + more work. Divvying up credit to a #team effort is hard, requires more #admin time from #leaders (=$$$)
9/ And actually sharing credit is hard #emotional labor for the team. But interesting point here: the next time we say #lawyers ❤️#autonomy, maybe we should take a moment to remember they are incentivized to do so.
10/ My 3rd area of comment. Agree completely it seems insane to reward based on #billings, not #revenue. But this is also a function of logistical effort + #admin costs (also more vicious cycle!). The time lag to cash is FOR REAL & there is a lot of #messiness to collections.
11/ I used to #dial for $ before year-close at firms of differing sizes. There are many ways to get the money wired before deadline. Should be a last resort but 1 is to apply a discount across all A/R. This is time-consuming to reconcile (allocate across all relevant matters).
12/ Does that sound lazy? Maybe. I point out though, Am Law firms prob have 5k - 15k clients online at any time, w matter count in high 5-figures. These firms send many bills, receive many checks/wires. Am I actually defending firms? Not really. Just trying to paint a picture.
13/ Just want to remind people, changing this is slow not bc law firms are crazy or stupid. Changing all this is hard. Maybe not hard the way stochastic calculus is - more like how it's to go thru file boxes where I've thrown bank statements, old leases, tax stuff for YEARS.
14/ OR this box that has old laptops, hard drives, peripherals, cables from YEARS. Like damn I just want to throw it away but I know there is stuff with my SSN on it. But the work seems time-consuming and soul-crushing. So you know, I still have these boxes.
15/ Rewiring the finance stack to track anything but the billable hour and to report performance for any other model will be a lot of this kind of time-consuming soul-crushing work. Plus thinking about well what should be the actual #unit of #measurement?
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