Ethics, Finance, Practice Management

Bonuses – “The Remix”

What?  Who’s giving out bonuses in this down economy?  Despite the economic climate that has affected pretty much every law office in the country, bonuses are still being given out.  Sounds a little odd, but in fact, bonuses can be great firm marketing and retention tools, and there are several ways to structure them so that they become a win-win proposition for the awarder and the recipient. Be sure that you are not fee-splitting when doing so, and only reward based on overall firm revenue amounts.   (See further explanation from the Office of General Counsel below.)

Associate bonuses can enhance the offer you make to new associates and might even give some wiggle room in terms of starting salaries.  You can deliver bonuses based on production (hours worked, billed and collected); origination (bringing in new business to the firm); and even general work (hours worked beyond the general amount for certain matters.)  Percentage bonuses are easily calculated when using a good tracking system and having procedures that force consistent time entry, regular billing, and current financial reporting.

Another general consideration with paying bonuses is to watch the timing.  For instance, traditional firms would give out bonuses at year’s end near holiday periods.  If you are on top of your office’s cash flow though, consider staggering the bonus over certain periods whether they come during holiday periods or not.  It’s always nice to have not only an extra day off to celebrate a holiday, but to have a little extra cash during this time might also be a great perk! For retention purposes, think about calculating bonuses over a certain period, but rewarding them later or over staggered periods. 

Set thresholds for production or realization before rewarding bonuses.  Only after a staff person has worked X number of hours (don’t forget to pay overtime where required), and shown X type of work behavior (think merit increase) should you reward with a bonus.

 From the Office of General Counsel

Rule 5.4 of the Georgia Rules of Professional Conduct generally prohibits lawyers from sharing fees with nonlawyers.  However, Rule 5.4(a)(3) provides that a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement.  Formal Advisory Opinion 05-4 explains that Rule 5.4(a)(3) allows a lawyer to pay a monthly bonus to nonlawyer employees, in addition to their regular monthly salary, if the bonus is based on the gross receipts of the law office.  The same reasoning would apply to an annual bonus.  However, such bonuses should not be based on income from a specific matter standing alone.

Natalie & Tina  

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