Determination of Compensation Increases
Initial hire salary is typically based on how many years out of law school a candidate is, which school they went to, any trial experience, do they write well, negotiate well, manage cases efficiently. Meet or exceed the firm minimum billing hour requirement? Does the candidate have a book of business? What was the candidate’s previous salary? What does the candidate bring to the firm from a quality and practice area perspective?
Salary increases are generally done at annual intervals and largely based on a simple percentage from the current base or based on how much the attorney billed and/or collected in the prior 12 months. If this was done on an across the board basis for all timekeepers you will see your firm margins decrease and in a couple years may lead to losses and negative cash flow, requiring tapping of the credit line.
Why is this method wrong? There are many factors that need to be considered before granting increases based solely on timekeeper performance. Here is a sample list:
Are firm billable hour requirements being met or exceeded?
How much of the time is being reduced by the billing partner on pre-bills or by the client on actual billing?
What are the actual margins by client that the timekeeper is working on?
Hourly work or Flat Fee?
When is the last time client rates were increased?
How is the client cash flow, are billings being collected timely from the client?
Is direct overhead attributed to the timekeeper, legal assistant, paralegal, and file clerk sharing % being considered?
Has the firm office overhead increased?
Is back office administration being allocated?
BBR Legal will help you analyze these and many other factors to help you gain control of your compensation review, bottom line and cash flow.
Alan Brenner
CFO
BBR Legal LLC