This of course applies across every aspect of law firm management firm but I am particularly interested in its impact on pricing behavior. Unfortunately I see in most firms various reporting and meritocracy structures that perversely incentivise sub-optimal pricing behavior.

Why are we in business? Many reasons, but like any other business, one of them is to make a profit. Which begs the question, 'why don't we do more to measure profit?' 'We do' is the reply. Not to the extent that we should.

If you can't at the push of a button ascertain profit/profitability by fee earner, practice area, practice team, office, client and matter/file, then you are not only flying blind but you are probably relying on a set of inappropriate or irrelevant metrics to measure the performance of your people and as we know, you get the behaviour you measure and reward.

Take these as examples;

Action/Behaviour (or lack of)	Response/Consequence
Personal billable hours budgets including bonuses based on billable hours	Lack of delegation ('It's my precious!') Inefficiency, over-lawyering and time 'dumping is incentivised and rewarded A perpetual sore point with clients Behaviour is even worse when gross hours trigger the bonus, not net hours as I have seen in some firms
Time write-offs viewed negatively and/or count against you on your appraisal	Fee earners manipulate time on the file, engage in moral editing ('the client shouldn't have to pay for this') or even stop recording time to avoid write-offs and admonishment You are left with time records that are meaningless for either pricing or cost management purposes
Hourly rates set primarily based on linear experience & the firms' internal hierarchy	Fee earners whose work could be charged at higher rates isn't, losing the firm revenue Frustrated and underperforming fee earners
Profitability by client and file not measured and reported	No understanding of what is profitable and what is just turnover Unprofitable fee earners, clients and work are tolerated for too long and for the wrong reasons

Picture this (real) conversation I observed recently;

Supervising partner (SP) – XXX, we have been asked to do a shareholders agreement for A and B [existing clients]. Can you do most of it and I will run an eye over it before you get them to sign it, okay? Here's the note I took.

Associate – You've given them a fixed fee of £4,000?

SP – Yes, they insisted on a quote. So don't overdo this, we need to come in at or even under the £4,000 on the clock. I've been getting in the neck about our margins. So, don't go over the £4k.

[SP, as the Associate is leaving the partners office] – Oh, it's the 27^th and I was looking at your time report. You better have a look at that because you aren't going to hit time budget.

[Presumed Associate thought bubble] – Make up your damn mind, what do you want, lots of hours or few hours?

In contrast, consider the consequences of telling fee earners and departmental heads that the only thing that matters is profitability (as a percentage of the fee that is charged and as a quantum figure) and that recognition, accolades, promotion and bonuses will be determined by this metric alone. What behaviours might this encourage?

• Work will be vigorously delegated to the lowest level at which it can be undertaken competently, effectively and efficiently
• Time dumping and padding of time sheets will largely disappear
• A greater proportion of fixed fee arrangements will deliver a super-profit above time-cost
• Heads of department will bring greater focus to how to cost effectively resource a matter
• Fee earners will behave more commercially for the benefit of the client and the firm.
• The firm's interests and those of the client will be better aligned because the client is paying for results and outcomes rather than effort or hours. Happier client, fewer complaints.

In short, you would get the behavior that you are measuring, reporting and appraising people on.

In order to properly align its incentives to support its mission and objectives, the firm must determine what fee earners believe they are being encouraged to do and not do.

Some people will do what you want anyway, for personal reasons, but effective law firm leaders use a 'carrot and stick' approach to get the behaviour they want. They create cultures that inspire and motivate people to do the right things and they provide incentives and consequences.

They don't sit idly by while hoping their people will behave the way they want them to. And they most certainly do not create or permit the existence of a dissonant meritocracy structure that advocates certain pricing behavior, but measures, reports and rewards completely different pricing behaviour.

You can espouse the desirability of certain behavior until you are blue in the face. In the finale analysis, people will only do what is in their best interests. That is the nature of positive conditioned response.

It's quite simple; if you want more profit, reward that and not the things you think are the means to that end.