Incentives for Lawyers

Abstract

The authors study an international law firm that changed its compensation plan for team leaders to address a multitasking problem: Team leaders were focusing their effort on billable hours and not spending sufficient time on leadership activities to build the firm. Compensation was changed to provide greater incentives for the leadership activities and weaker incentives for billable hours. The effect of this change on the task allocation of the firm's team leaders was large and robust; team leaders increased their non-billable hours and shifted billable hours to team members. The firm's new compensation plan (combining an objective formula with subjective evaluations) is the fastestgrowing compensation system among law firms today.

Incentivizing Team Leaders: A Firm-Level Experiment on Subjective Performance Evaluation of Leadership Skills

“…For instance, in a study of US law rms, Bartel et al (2017) nd that when senior partners were rewarded based on a combination of output-based and subjective performance evaluation, they reduced their billable hours and increased non-billable activities to the benet of other team members.…”

“…We contribute to the literature assessing incentive schemes in multitasking environments. Most closely related is the work of Bartel et al (2017) who study partners in law rms and their trade-o between allocating their time toward billable hours, attributable to work for a client, and non-billable hours, which includes acquisition of new clients and similar activities. Exploiting a change in the law rm's reward policy for all team leaders, explicitly incentivising non-billable activities, they nd a shi toward these activities aer the introduction of the new reward scheme.…”

Motivational Drivers of Extensive Work Effort: Are Long Hours Always Detrimental to Well‐being?

“…Two types of incentives leading to peer pressure can explain this phenomenon: (1) monetary incentives and (2) social incentives (Kandel and Lazear 1992). Where monetary team incentives are applied, peers are more likely to exert pressure against one another to work hard, because one individual's effort affects the rest of the team's income (Bartel, Cardiff-Hicks, and Shaw 2017;Che and Yoo 2001). In addition, by fostering social interaction, organizations can make the workforce more sensitive and adherent to a social norm of effort (Donze and Gunnes 2018).…”

Division of roles and endogenous specialization

“…High-powered, narrow incentives will focus the employees' effort on easy-to-measure tasks, such as billable hours or sales performance. In contrast, low-powered, broad incentives will inspire a shift towards allocation of effort across a portfolio of tasks even when it includes hard-to-measure tasks, such as mentoring or building organizational reputation (see Bartel & Cardiff-Hicks, 2017 for empirical evidence). Thus, incentive breath drives emergent allocation of effort across pre-defined tasks.…”