Brief June 2014

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... PARTNERS WANT YOU TO UNDERSTAND THAT YOU ARE AN INCOME PRODUCING ASSET. Chris Bates, Managing Director, KBE Human Capital

To confidently navigate your way through the process, you must invest time into understanding the purpose behind the performance review system, and how your ‘value’ and ultimately salary will be calculated by your firm.

Before we delve into the details, I would encourage you to stop and ask yourself the following questions: •

Do you fully understand the KPIs and other factors used to measure your performance?

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Are you aware of the implications of failing to meet, meeting, or exceeding your performance targets from both a salary and promotional perspective?

If you can answer the above questions with a reasonable degree of certainty, you will significantly reduce the likelihood of running into any surprises at review time.

The reverse is also true. If the goalposts are not clear and you do not know what you are aiming for, then you can almost guarantee that either you or your firm will be disappointed with the result of your review.

To put this another way: •

How can you meet and exceed expectations if you do not fully understand what is expected?

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And … how can you possibly demonstrate that you objectively deserve more than the average market increase if you cannot show that you have performed over and above expectations?

2. THE STARTING POINT – UNDERSTANDING THE PROCESS AND HOW YOU WILL BE MEASURED Every law firm is a business. Every business is fundamentally the same. They exist to turn a profit.

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When you boil everything down, firms are looking for all team members to add value. You must therefore learn to: •

Demonstrate the value that you have added to the firm throughout the year; and

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Create a clear link between your performance and the level of salary you are seeking.

Most firms invest time and energy into the review process. It is therefore reasonable to assume there is some science behind the salary levels offered at review time. If you want to better understand the salary levels offered, you must first understand the performance management process and the business that is legal practice.

To begin, ensure you have clear answers the following questions: •

How are you being measured?

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When/why are you being measured?

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What are the implications of failing to meet, meeting, and exceeding your KPIs from both a salary and career progression perspective?

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Who will measure your performance?

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Who is making the ultimate decision regarding your salary/promotions?

3. THE LINK BETWEEN PERFORMANCE AND SALARY – PUTTING YOUR BEST FOOT FORWARD Although they may not come out and say it, partners want you to understand that you are an income producing asset.

If you are seeking a pay increase, you must clearly build and articulate your case as to why you are now worth more to the firm than you were at your last review. You should consider your performance objectively, using some or all of the factors discussed below, and

rating yourself as an income producing asset of the firm.

Contrary to popular belief, you should not expect a salary increase simply because you have another 12 months of post admission experience. Unfortunately, that is not how business works. If you have become more valuable to the firm, then you can reasonably expect a salary review and increase. If you are not adding more value, then you should not reasonably expect a pay rise.

By understanding the below framework, as well as any additional targets/KPIs/ expectations set by your Partners, you should be able to confidently navigate the review process and come to a fair agreement on salary.

Common review factors There are a set of factors considered by every business owner, either consciously or subconsciously, in determining your value and ultimately salary. In relation to law firms, they may be listed as follows: 1. Time/Budget/Charge Out Rate – this remains the single most important factor. Partners inevitably consider your billings when deciding on promotions and salary levels.

Meeting your target is arguably the best way to objectively demonstrate ‘value’. The more time you can bill and exceed your budget, the more likely you will progress in your role.

The reverse is equally true. Where billings are consistently below budget, it is likely that your career/ salary progression will be slower than your peers. As an income producing asset, you must be delivering the expected return to receive a pay increase. In almost all cases, this is a non-negotiable.

2. Market Rate/Post Admission Experience – what is the ‘market rate’ for a lawyer at your experience

level with comparable technical expertise, responsibilities, autonomy and billables? This is particularly important in larger firms which can be constrained by salary bands, regardless of performance.

Remember to compare apples with apples. A lawyer billing 25 hours per week cannot expect to receive the same salary increase as a lawyer billing 40 hours per week.

3. Technical Expertise – you must be able to effectively and efficiently complete and manage the work allocated to you. You should be able to demonstrate that you have improved technically since your last review (for example, demonstrate that you are completing more complex work with less supervision).

4. Ratio: Salary To Revenue – calculate the revenue you have generated over the review period. As a guide, the ratio of salary to revenue should be in the vicinity of 1 x salary to 3 to 4 x revenue. Anything below is likely underachievement, and anything above may warrant a pay increase. Remember that the firm is a business; they are less concerned with time recorded than they are about time actually billed and recovered. As junior lawyers, think about the firm as a business.

Your employers must recover three times your salary to cover your salary costs, overheads and make some profit for having taken the risk of being in business.

5. Autonomy/Supervision – the less supervision you require, the more valuable you are to the firm. Can you manage files fairly autonomously?

Do you provide a review and coaching role to more junior staff, thereby freeing up more senior lawyers to complete client work?

6. Business Development/Networking – partners (and, in some cases, senior associates) need to be able to win and retain work. It is never too early to build your professional networks and referral sources. How much work have you generated over the review period in terms of new and existing clients? Do you attend BD functions/give presentations/ write articles/network on behalf of the firm? Your university contacts, current clients and online tools are great ways to build your networks and referral sources. Consider getting involved with The Law Society, CA/CPA Australia, AMEC, CCI, AMMA, The Petroleum Club, FINSIA, CSA, etc. You may also consider engaging specialist

business development coaches to assist and keep you accountable in developing a referral/business network.

7. Importance to the Firm – where do you ‘fit in’ with regards to the team?

Are you a core/integral member, and what is your ‘intrinsic’ or ‘intangible’ value? If you are a key team member, you may have a little more leverage when it comes to salary negotiations. If you are very junior and one of many in the firm’s ranks, you may find yourself at the mercy of salary bands. Always do what is within your control. Add as much value as possible; differentiate yourself from your peers, and become a ‘go to’ person at the junior level.

8. Likelihood of Increase – how likely is it that the firm will increase your salary if you approach your performance review the right way?

Always consider the value of, and any potential damage to, the employment relationship.

9. Career Progression – remember where you are heading in the longer term. If you are learning and developing skills in a positive environment, you are gaining significant long-term value. Focus on building your technical and client facing skills, and the money will come.

10. The ‘Deserve’ Factor – objectively, do you deserve a pay rise/ position increase, based on your performance? What is the fair outcome for both parties?

4. SALARY REVIEWS – HOW DO YOU BRING IT ALL TOGETHER? As with any important meeting, preparation is the key. You should enter the meeting with a clear picture of what you are seeking in terms of salary/ promotion, and more importantly, why.

Ideally, you will have sought regular feedback throughout the review period so there should be no surprises for either you or the firm. It is good practice to keep a written record of feedback provided throughout the year (for example, an email recounting the discussion and thanking the senior practitioner for the feedback).

Regardless of your position, experience level, and tier of firm, any discussions around salary and performance should be: •

Well informed;

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Open and transparent;

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Based on measurable KPIs/ milestones; and

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With a view to reaching a position that is fair for both the employer and employee.

When setting your own salary expectations, I would suggest using the following approach: 1. Start with your salary to revenue ratio to ensure your expectations are realistic. This is linked to the key factors of time billed vs budget, and charge out rate.

2. Consider the market rate for a lawyer of your level. Consult salary guides, and ask recruiters for current information about salaries for lawyers in comparable roles at comparable firms.

3. Consider your technical expertise, BD contributions, networking efforts and autonomy as compared with this time last year. It is also useful to compare yourself with peers within the firm and at other firms.

4. Use examples to demonstrate your achievements over the review period, as well as any challenges you have faced. As an example, you may refer to a major project/engagement that you delivered ahead of time and under budget.

As part of the review process, don’t forget to set clear performance goals for the year ahead. Ensure they are agreed in writing so there is accountability both ways. This will ensure next year’s performance/salary review is well informed, open, transparent and based on measurable KPIs/milestones that you will have set and hopefully achieved.

5. CONCLUSION Navigating the performance review process is never easy.

It involves a natural and inevitable power imbalance between employer and employee, and is often made more challenging by a lack of accurate information.

That said, the process can be made much easier by adopting a systematic approach. By understanding exactly how you are to be measured, and then demonstrating value against those KPIs, you are putting your best foot forward to secure the best possible salary increase and related promotional opportunities.

As a junior lawyer, focus on what you can control. Develop outstanding technical skills. Build your network. Continue to go over and above, and the money will always follow.

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pam sawyer

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