Want to Increase Bottom Line, Law Firms Should Raise Salaries

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Want to Increase Bottom Line, Law Firms Should Raise Salaries

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Here’s How Much it Costs to Raise a Child

February 21, 2020

The following is adapted from The Case for Culture, How to Stop Being a Slave to Your Law Firm, Grow Your Practice and Actually Be Happy by Eric Farber. 

Turnover in business is rampant and frankly it is killing your bottom line.  Two major factors are at play, first, more than 50% of employees in the United States are looking for a new job, second, the cost of turnover has been said to be as high as ten times the annual salary of an employee.  That is a lot of money.  So, often, when people are trying to build a great culture in a company (and a law firm is a company) I suggest look at your employees salaries and most small and medium law firms need to raise them up.  Not only does it let people know you’re serious about keeping good people, but you’re serious about keeping them happy.  Frankly, when it comes to skilled employees, like most things in life, you get what you pay for. If you want to attract the best talent to your law firm, lawyers and otherwise, you’re going to need salaries to match.

I know what you’re thinking: “I already pay my people enough! I can’t afford to pay them any more.”

To that I would say: can you afford to have a revolving door of employees? To lose your star players to your competition? To never attract talented lawyers, paralegals, assistants, operations and in the first place?

It can be difficult to budget for higher salaries, but as I’ve experienced at our firm, the extra cost is worth it for less turnover, more motivated employees, and sharper talent. Here’s a closer look at how raising the pay can transform your employees’ performance.

Give People a Reason to Stay

In the seminal book on growing a practice, You Can’t Teach Hungry: Creating the Multimillion Dollar Law Firm, John Morgan writes, “If people are leaving, you’re either not paying enough, or you’re a jerk.”

I tried the not-jerk option first at our firm, as I didn’t believe we had the cash to pay enough. Not being a jerk was the cheaper choice, and it aligned with my goal to be a better boss. We had some success, but our turnover was still very high. 

And as I have learned, if you have high turnover, it is the highest hidden cost you have.  It is estimated the loss of a good employee is 10 times their base salary!  That’s a lot of money on your Profit & Loss Statement.

The start of our transformation was not easy and it took time.  First, I looked at how we operated, what we wanted from our law firm, and the legacy we were trying to create. We evaluated our pay structures, stopped the complicated incentive programs, and committed to paying everyone as much as possible, with as many benefits as possible.

If that meant we, the owners, had to take a lot less home, so be it. We began with the frontline jobs. We explained to our lawyers what we were doing and that, if it worked, they would also see large salary increases as we worked up the ladder. Our most junior people got immediate raises, and we rolled out pay increases to everyone else over a short period.

Now that we’d shown our employees we were committed to retaining them—and willing to pay for it—we had to fine-tune exactly how much this change should cost the company.

How Much Should You Pay?

Even if you’re on board with increasing salaries, you might be wondering just how much to raise the bar. The answer depends on several factors including geographic location, the employee’s experience level, the role being considered, and more.

To determine the salary increases, I looked at the cost of living in San Francisco’s Bay Area, where we’re located, for the demographic we employed. I researched what other workers’ compensation firms as well as general law firms paid for those positions. It quickly became clear that this approach wasn’t good enough. Our area has one of the lowest unemployment rates in the country, and our support staff could easily get jobs in any industry. They weren’t confined to law.

I finally considered what it would take to make people happy with their pay rate. Although we gave instant raises, it took several iterations to bring our pay structure to a point where it makes us and our employees happy. In a few cases, salaries doubled. Some roles started at thirteen dollars an hour, just above the minimum wage for our area. They now pay as much as twenty-five dollars an hour or more.

Don’t Forget Benefits

While benefits aren’t a substitute for a good salary, they’re still important and can go a long way toward improving your employee retention and satisfaction.

First, we assessed health insurance at our firm. Early on, we couldn’t find the cash to immediately increase health insurance contributions, so we committed to annual increases, which gave us time to find the money. In the meantime, I went on a mission to find benefits that were out of the ordinary. I found a retirement program that shifted much of the burden of the cost of retirement accounts from the team to the company.  We started simply paying for the program and not match up to 4% for anyone in the program (it’s offered to everyone at the company).  We also stopped treating the lawyers differently, our original health care insurer had company contributions for the lawyers at a different level than the other employees.  We stopped that and now everyone has the same plans and the same level of contribution.  Our company contribution has increased almost every year we have been in business.

Raises, great benefits and increases in health and retirement contributions have helped drastically reduce our turnover. People started to believe that our mission was more than just corporate bullshit. We were taking action to try and make them happy. That made them want to stay and work harder to help our firm succeed.

Even when done gradually, increasing pay and benefits cost money. Initially, I believed we couldn’t afford to increase pay rates, but here’s what I learned: If you can’t pay enough, you shouldn’t be in business. You have to figure out how to pay your people well to attract the best talent and retain your highest-performing employees.

No Substitute for Good Pay

Remember, there’s no way to get around this fact of business: if you want the best talent, you need to pay for it. Increase your salaries and go the extra mile to find out-of-the-ordinary benefit packages, and you’ll easily attract and retain the talented employees you want for your team.

For more advice on improving your law firm bottom line by creating a great place to work, you can find The Case for Culture on Amazon

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About the author

Eric Farber is on a mission to change how law firms operate by showing lawyers the value of putting culture first. During his twenty-five years as a lawyer, Eric has lived the transformation from scarcity to abundance that becomes possible when you shift your perspective and prioritize people. As the CEO and chief legal officer of Pacific Workers' Compensation Law Center, Eric's focus on culture helped him build a seven-figure firm that's gone from four people to forty in just five years, been an Inc. 5000 company twice, was named to the Bay Area 100 list of fastest-growing companies, and spent two consecutive years in the top fifty of Law Firm 500.

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