In our new column on the Legal Executive Institute blog, we are honored to be working with Dr. Paola Cecchi-Dimeglio, a behavioral economist and senior research fellow for Harvard Law School’s Center on the Legal Profession and the Harvard Kennedy School. Each month, Dr. Cecchi-Dimeglio will be answering questions about how law firms and legal service firms can navigate a dramatically changing legal environment using data analytics and behavioral science. (You can follow her on twitter at @HLSPaola.)
On to this month’s question…
Ask Dr. Paola: What is the best way to incentivize my lawyers?
Dr. Cecchi-Dimeglio: At the end of my first column, in response to a question on the value of data analytics use within a law firm, we began to get into the question of how best to create effective incentives for positive behavioral change — so, I am pleased to expand on that a bit more.
As I said then, the very first step you must take is to try to understand what data are telling you about your own firm. In fact, the creation of incentives that will foster positive change at your firm is really the end result — the completion of all data gathering and analysis, and of reaching an understanding of how your organization works and doesn’t work.
I think, as I said previously, there is a wealth of information you can gather on your firm and its inner workings, and you don’t just have to rely on your gut feeling or on what might have worked well somewhere else. You can make an informed choice based on evidence.
That’s why it’s not just important to gather data from the firm, but also to take the trouble to interview the people inside the organization who understand how the firm works, and add their perceptions to the data. This way you can see where the gaps are happening, and have them provide more vision into some of the data, and some of the friction that you see in the data.
During this process, I think some firms are really surprised by how deep you need to go and what data you’re getting when you do that, and especially, what it says.
But back to the issue of incentives. Behavioral sciences tell us that to make a fundamental change in behavior that will affect the long-term outcome of a specific process, you need to insert an inflection point. So, what is the best method to do so? Incentives.
Let’s just take an example, and say that to make partner at a certain law firm, you need to have a portfolio of $1.2 million this year. Last year, the benchmark was $1.1 million; and two years ago, it was $1 million. So, clearly by setting the benchmarks in this way, the firm is expecting that within the next few years or so, they will have moved from partners needing a portfolio of $1 million to make partner to almost $2 million. The firm communicates a clear trend: You need to grow your portfolio to become a partner.
But the firm needs to understand what motivates people to be able to get there and remain on the path to becoming a partner — and also what they’re saying about making partner with their expectation of $2 million and the reality of where they are currently with $1.2 million.
What is going to motivate lawyers to get there? The difference between the expectations ($2 million) and reality ($1.2 million) is usually referred to as the “behavioral gap.” When the behavioral gap is important, an inflection point must be inserted to close that gap. The right incentive or a sequence of incentives over time can initiate an inflection point and influence a change in behavior. Perhaps incentives can be an added such as bonuses for certain types of contracts signed, or for specific activities one can do at the firm or for keeping promises to develop a diverse team for your client. Incentives must be designed intelligently and be data driven.
You certainly want to move along people that way, but through data and analyzing, you can understand also that the firm has, over the years, been on a different path as to how its leaders have expressed their criteria to become a partner and how that criteria has evolved over time. Learning that type of information informs you and puts you on the path you want to be on — creating effective incentives for positive behavioral change, in this case, to make partner with a larger portfolio of business.