Compensating Lawyers in Law Departments

Goal and Objectives

Corporations translate their strategic business goals into manageable objectives for their business units (subsidiaries, departments, divisions). Various techniques such as the balanced scorecard are used to ensure alignment. In other words, business units no longer have their own objectives. At the outset, setting objectives is a top-down process.

In turn, these objectives are translated into more specific objectives which individual members, including lawyers, must accomplish each year. The dominant practice is to set 4-6 measurable objectives per person, and to ensure that no more than one or two of these are specific to the law department. The result is that three-quarters of individual objectives become aligned with the strategic goals / priorities of the corporation and its business units. Each objective is then normally accompanied by an “indicator” to ensure that the objective is Specific, Measurable, Achievable, Results-oriented, and Time-based. Selecting objectives and indicators unique to law departments is a significant challenge for General Counsel.

Finally, it appears as if law department goals are rarely factored into performance management systems. There was a time only a few years ago when “ team-focused ” performance pay was more prominent in the design of corporate compensation systems. This has gone out of fashion and been replaced by CORPORATE objectives which can be shared by several lawyers, or by lawyers and their internal clients.

Types of Objectives

Corporate goals and objectives can include

• significant acquisitions, divestitures or re-structuring;
• re-financing the organization;
• overhauling the compliance and corporate governance practices;
• saving money or generating revenue for the corporation, sometimes in tandem with the business units;
• reducing business risk for the corporation; and
• accelerating the conduct of business.

Initiatives and indicators can then readily be crafted against such objectives. This is far easier to do when the initiative is something the business unit has already decided to do. Examples of initiatives in Canadian law departments include:

• capturing royalty revenue from the IP portfolio;
• reducing the costs of outside counsel;
• leading the negotiations for business / product acquisitions or for contracts;
• negotiating settlements from disputes with employees, suppliers, customers, etc.

Preferred results and deadlines are usually included in the objectives and their indicators.

Corporate Results and Individual Merit

Even though individuals may achieve all of their objectives, it is quite normal to see an adjustment up or down in the entitlement to performance pay based on overriding factors such as:

• the financial results achieved by the corporation;
• the index / composite score for morale and satisfaction of the law department’s employees compared to the enterprise-wide score for the same factors;
• the satisfaction index / composite score for the clients of the law department; and
• individual adherence to corporate values and behaviours, as assessed by the General Counsel. This assessment also allows the General Counsel to make an allocation for extraordinary effort, leadership and other less measurable but no less valuable contributions by members of the law department.

In summary, a lawyer can see his or her performance pay (bonuses, variable pay) adjusted up or down once the above-mentioned overriding factors are taken into account.

The Role of Clients

Clients are involved in setting objectives for individual lawyers, but this is usually done in collaboration with the General Counsel. Accordingly, clients are also involved in providing input to the General Counsel on the performance of the lawyers. It is not at all common for clients to actually decide the performance pay for lawyers they typically use.