Asked and Answered

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the sole owner of a four-attorney firm in St. Louis, Missouri. Our firm has four staff members - 2 legal assistants, a receptionist, and an office manager/bookkeeper. It is that time of year again where I anguish over year-end bonuses for staff which end up being Santa Claus bonuses with no relationship to actual performance. I would like to move away from this approach and tie their bonuses to performance. How do I measure performance for bonuses?

A. I like to tie salary increases to performance reviews tied to skills, competencies, value of the position in the market, cost of living, etc. Bonuses on the other hand should be tied to accomplishment of specific measurable results. Since staff results usually cannot be measured in terms of billable hours or collected dollars another measure must be used. I prefer to tie bonuses to accomplishment of specific agreed to goals or objectives.

Here is a system that some of my clients are using:

1. Four goals are set at the beginning of each year.
2. Two of the goals are firm goals. One goal might be for the firm to hit a certain revenue target. Another goal might be for the firm to hit a certain profit margin target.
3. Two goals are personal/individual staff member goals that are discussed and approved by you.
4. Goals should be SMART goals
    
   1.     S - Specific
   2.     M - Measurable
   3.     A - Attainable
   4.     R - Realistic
   5.     T - On a specific timeline

5. Each goal (firm and personal) is worth 2.5% (maximum 10%). The percentage is taken times annual base salary of the staff member to determine bonus.
6. At the end of the year determine which goals were met and calculate bonus.

The goals should be tough.

Example of individual goals that meet the SMART test:

1. Write and publish an Employee Handbook by December 31, 2017.
2. Write and publish an Office Procedures Manual by December 31, 2017.
3. Successfully complete six hours in accounting at a local college by December 31, 2017 with a grade of B or better.

Other approaches can be taken - the key is to tie variable bonus to actual results.

Click here for our blog on compensation

Click here for articles on other topics

John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.