Originally published on LinkedIn on 2 July 2026.
Two partners got the same bonus this year.
One grew the client base with three new clients. Margin on her files sat comfortably above target. She brought in work the firm didn’t previously have at rates the firm chose.
The other hit his hours. Matter after matter, year after year, billable hours on the nose. He delivered what was asked and billed it cleanly.
Same bonus. Same conversation in the partner meeting. Nobody mentioned margin. Nobody mentioned retention. The number that got discussed was hours.
This isn’t a small thing because what you measure and reward is the operating system of your firm. It’s the signal that tells people what actually matters here, sometimes different from what your values statement claims. Many firms have a compensation structure that’s quietly incentivising the opposite of what they say they want.
Hours are easy to measure. Margin is harder. Retention is invisible until someone leaves. So, partners default to hours, the clean metric that feels objective.
What they can’t see is what that structure is producing downstream.
What happens when hours are the only measure
A partner hits billable targets consistently. Scope expands mid-matter. Rather than reset the fee, they absorb the cost. The relationship feels safer than the conversation. Write-offs accumulate.
A partner compensated solely on hours tries to mentor junior staff. Mentoring isn’t billable. Over time, this gets deprioritised. The team doesn’t develop at the right pace and capability stalls.
BigHand’s 2025 Annual Law Firm Finance Report puts a number on this: less than 50% of firms incorporate financial measures, including retention and matter profitability, into remuneration models. This means many firms are compensating based on partial data, making decisions that look objective but are shaping behaviour in ways they can’t see.
The blind spot
Partners see the symptoms clearly enough. High write-offs, rising attrition, margin erosion but they misread the cause. Quality issues. Pricing problems. Market conditions. The person who left.
None of it feels connected to the bonus structure. You built it to be objective and fair. It is, but the structure is producing a different outcome than you intended. It’s incentivising the opposite of what you want.
When your compensation structure shifts, the behaviour shifts. When behaviour shifts, the numbers shift.
What the numbers reveal
Pull last year’s bonus decisions. Count how many were justified by hours alone, versus how many factored in margin, client retention, or team development.
The answer tells you what your firm actually values. Not what you hope you value but what you’re actually paying for.
Your compensation structure is the clearest signal a firm sends about what matters. If yours is measuring hours, you’re measuring effort, not outcome. You’re getting exactly what you’re paying for: people optimising for hours instead of the business metrics that actually move your numbers.
The Financial Diagnostic surfaces which operational patterns your compensation structure is incentivising and where the KPI impact is highest. That’s where the recalibration starts.
Free Financial Diagnostic: https://www.thomastelman.com/leadership-blind-spot-financial-risk-diagnostic