Create an incentive program, not a sweepstakes NEXFIRM BLOG

A career of drafting complicated contracts for their clients teaches managing partners to believe that their employment arrangements should be equally thorough. Their attorneys concur, often proposing complex structures with mind-numbing calculations to compensate them for every possible outcome. Aside from the logistical challenges they create, these compensation structures never meet the primary objective of incentivizing outcomes. They are the opposite of what we all know; the best incentive is one incentive.

Unlike a contract designed to prevent unwanted behaviors, a compensation structure should incentivize desired outcomes. You are not trying to keep your employee from watching The Godfather and eating Bonbons when they are supposed to be working; you are trying to help them build on their success. This is accomplished not by manipulating their behavior; it happens when you set a single goal that is clear, achievable, and measurable. The structure must provide marching orders so they can set priorities. This will tap into their desire for success, needs for self-actualization, and objective to be recognized. A 'sweepstakes' compensation calculation incentivizes many different results, prevents focus, and never brings success.

Take, for example, an hourly billing target for the year. If an attorney on your team has billed approximately 1,500 per year, and you would like to see that number grow, set an objective of 1,650 hours with a bonus incentive. They may come back and propose the following: a bonus at 1,600 hours, another at 1,650, and a third at 1,700. Your response should be a hard no.

First, it prevents them from managing to a single goal. Instead of creating a plan to meet 1,650, they will try to bill as many hours as possible, hoping to earn as much as they can. To reinforce this idea of planning to meet their goal, you might offer to meet with them once per month to track their progress so that you can assist them. Second, a "sweepstakes" compensation structure deprives you of the opportunity to build the most critical element of your relationship with your employee, trust. When you reject their laddered bonus proposal, you should promise to set a second goal if they reach the first one. If they will be long-tenured employees and eventually partners, they must trust that they can depend on you to provide fair and reasonable compensation for their contributions. They must abandon their instinct to demand every inch of your agreement in writing to build an employment relationship that will last.

When they meet their goal, never miss an opportunity to celebrate their success. Your leadership counts and fostering an ethos that celebrates success is vital to cultivating high performance. Creating a compensation structure built on clarity and trust will take you a long way toward building the firm you hope to have.

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David DePietto is the founder and CEO of NexFirm. He can be reached at ddepietto@nexfirm.com.