Law Department Management Blog
It is easy to say: “Set up bonus incentives for our law firms to motivate better performance.” Sometimes the goals of the company that will earn a law firm a bonus are tangible and straightforward to articulate (See my posts of June 20, 2008: reduce the number of lawsuits for and against client; Aug. 4, 2007: example of success-based bonus in litigation; and Nov. 2, 2006: payments based on Total Cost of Resolution.). Often, however, a bonus depends on subjective and discretionary decisions by the law department.
Bonus arrangements have drawbacks and have met resistance from in-house managers (See my posts of Sept. 28, 2007: be wary of incentives; Nov. 7, 2007: reluctance by in-house counsel to enter into success-bonus arrangements with firms; and Oct. 29, 2007: data on the unpopularity of this technique.). Time constraints and strategic flexibility are among the challenges (See my posts of Nov. 6, 2007: time needed to structure the terms deter alternative fee arrangements; Feb. 26, 2008: bonuses can unravel if client changes strategy; and Feb. 16, 2006: fly in the ointment of incentives for counsel on transactions.).
Few law-department managers think through whether the bonus plum will be worth it to the client (See my posts of Sept. 5, 2007: alternative fees ought to target desired outcomes, and in proportion to their odds; Nov. 8, 2007: ask for probabilities of scenarios to help decide bonuses; and Oct. 15, 2007: an improvement on bonus deliberations by a law department.).
Given all the difficulties, bonus arrangements tend to be negotiated with larger law firms (See my post of July 25, 2007: large firms can better absorb risks of alternative billing, such as bonuses.).