Associate Salary Increases & Firm Margins

Admin — Thu, 04 Sep 2008 17:20:23 GMT

It should come as no surprise to anyone that the most recent wave of associate salary increases have helped to erode law firm profit margins. Whether the wave begins in west coast technology firms, or east coast financial capital firms, its effects are felt beyond big law in the mid-size and regional firms headquartered in the mid-west and southeast. And, with 80% of law firm expense tied up in compensation and occupancy, the impact can be devastating. What is more surprising is the response of law firm leaders in this new economic environment. Reactions run the gamut from slash and burn tactics to taking it on the chin and silently watching margins erode. Formulating a balanced strategy and resisting the urge for an emotional response is critical. Consider the following.

First, is increasing associate salaries is an appropriate response to increased competition for the best talent in your market or just a follow the leader reaction? Associate salary increases typically begin in markets where competition is fierce for not only attracting the best talent, but also keeping that talent as the reality of billable hours requirements hits home. Increasingly, associates are not willing to trade work life balance for a big paycheck. This attitude is not pigeonholed in the bottom half of the law school classes, but pervades throughout. Are there other work life benefits your firm can offer to entice top talent?

Secondly, recent surveys suggest the demand for legal services have declined in the first two quarters of 2008, and making sure your lawyers are properly utilized is essential to maintaining profitability. As margins become slimmer, there is no room for unproductive associates taking up space. But are associates really the problem? Most associates have little control over the projects they are assigned and virtually no ability to generate new business. They, like everyone else in the firm, rely on the rainmakers to generate enough billable hours to support the business. Before taking a defensive posture and eliminating positions, look for ways to improve your business development efforts. Are you effectively cross-selling your services to existing clients? Do you place enough emphasis on developing new business and in the right sectors?

Lastly, in today’s competitive marketplace, passing increased costs on to your clients is rarely an option. Even in big law, where clients were thought to be less price sensitive, general counsels are scoffing at increased rates as a result of higher associate salaries. Can you blame them? That doesn’t mean you have lost the ability to control your average rates. The next time someone asks you for an alternative billing arrangement, consider the request an opportunity to control your own destiny. Look for ways to strengthen the value proposition, improve practice management at the matter level, and increase leverage.

Can you avoid the impact of associate salary increases? Not likely. But focusing on the positive economic aspects of your business, rather than going on the defensive, may help you roll through the downturn and leave you prepared for the eventual upswing.

- Rick Rawls

Management Report Do's and Don'ts

Admin — Mon, 01 Sep 2008 17:21:00 GMT

I was recently asked to speak at a conference on the topic of management reports and how firms are using them to help run their businesses. It is a topic that I have been fortunate enough to gain a lot of insight into over the years. Often I am handed a stack of reports and asked to help the firm automate them or to come up with a package of reports to use as their “reporting package”. Most firms spend a lot of time and resources building their reports to look a certain way but spend little thought into the way that they are used and the actions they expect them to drive.

Any firm can generate data, but to be able to use this data to help model, analyze, and improve their business the firm must approach reporting with a more consistent process. Currently, I see many firms looking at information that could be best described as “interesting”. Interesting information is not the same as useful information. In order to take full advantage of the information available to them a firm must:

• Understand the business drivers of a law firm
• Identify what is controllable
• Establish reasonable goals and relevant metrics

Once the proper mindset has been established and goals have been set, the law firm can move forward with building a set of reports that identifies the best opportunities to reach these targets. The most important part of developing these reports is to keep them focused on the specific drivers of the goals and not get lost in the “noise” of the data. A common misconception is that having more data available improves the management process. In fact, the danger of information overload is just as great (or greater) of a problem as not having enough data or the wrong data. As Jack Trout says in his book Trout on Strategy, “Knowledge is power only if you can separate the important from the billions of data swirling around you”.

In the end, reports need to be catalysts for action. Reports by themselves do not make any difference in performance of a firm, rather they should serve to initiate improvement. By setting up a plan from the outset and then setting up reports to manage towards that plan the firm will become more efficient and consistent in their approach. Reports do not need to be complex to be useful, but they do need to speak directly to the questions being asked, providing clear direction quickly and succinctly.

- by Derek Schutz

Make More Rain : forecasting, expense control

Associate Salary Increases & Firm Margins

Management Report Do's and Don'ts