Measuring Performance for PSU Grants in Legal Tech Companies‍

Casey Fenton

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January 26, 2024

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Imagine walking into a legal tech office a decade ago. You'd find compensation packages tied mostly to experience and seniority. Fast-forward to today, and the landscape has dramatically shifted. A recent study by the Legal Tech Compensation Consortium revealed that over 70% of legal tech firms now use performance metrics to determine employee compensation. It's no longer just about how long you've been in the game; it's about the impact you bring to the table. 

One innovative tool driving this change is the Performance Shares Unit (PSU). But how do legal tech firms strike a balance, ensuring that PSU allocations are both equitable and merit-based? This article will scratch beyond the proverbial surface.

What is a Performance Shares Unit (PSU)?

A Performance Shares Unit (PSU) is not just another company benefit; it's a strategic commitment to an employee's long-term contribution and alignment with company growth. Unlike traditional stock options or shares, a PSU is contingent. It's a promise that an employee will receive shares, but these shares are only granted if specific performance criteria, set by the company, are met. Essentially, it's the company saying, "We believe in your potential, and here's how we're showing it."

PSUs act as a bridge between individual performance and company ownership. When an employee is granted a PSU, they're essentially being told that their contribution has a direct bearing on the success of the company. In return for their efforts and achievements, they get a tangible piece of the company's future.

Interestingly, unlike fixed salary components, the value of a PSU isn't constant. It's fluid and can vary depending on the company's performance, stock market fluctuations, and how well the set criteria are met. This dynamic nature of PSUs introduces a level of excitement and anticipation, as employees understand that their direct efforts can influence the eventual value of their compensation.

Significance of PSU in Legal Tech Business and Its Operations

The legal tech landscape is unique, blending the intricacies of the legal world with the rapid pace of technological innovation. In such a dynamic environment, attracting and retaining top-tier talent is imperative. Here's how PSUs come into play and why they hold distinctive significance in legal tech:

Aligning Innovation with Incentives

In legal tech, stagnation isn't an option. Companies must continually innovate to stay ahead. PSUs offer an incentive for employees to not just participate but to drive that innovation. When their rewards are tied to performance outcomes, there's a heightened motivation to develop groundbreaking solutions.

Cultivating Loyalty in a Competitive Market

The legal tech sector is booming, and competition for talent is fierce. PSUs can serve as a differentiator. By offering employees a stake in the company's future success, businesses send a powerful message: "Your growth is intertwined with ours."

Encouraging Long-Term Strategic Thinking

Legal tech solutions aren’t about quick fixes. They require strategic planning, an in-depth understanding of legal frameworks, and foresight about technological shifts. PSUs, with their emphasis on long-term performance metrics, encourage employees to think strategically and work towards sustained success.

Ensuring Alignment with Client Needs

Legal tech products and solutions are only as good as their real-world applicability. PSUs, by being tied to company performance, inherently link employee rewards to client satisfaction. This ensures that employees remain focused on delivering solutions that truly resonate with client needs.

Bridging the Tech-Legal Divide

One of the challenges in legal tech is ensuring that technological solutions are in sync with legal norms and requirements. PSUs can be structured to reward those who bridge this gap effectively, ensuring that tech solutions are both innovative and compliant.

Promoting a Culture of Accountability

By tying rewards directly to company performance, PSUs create an environment where every team member is accountable. In the intricate world of legal tech where both legal accuracy and tech performance are paramount, this culture of accountability ensures consistent quality and reliability.

Key Performance Indicators (KPIs) for Employees in Legal Tech Firms Granting PSUs

Legal tech firms sit at the intersection of technology and law, which presents a unique set of challenges and objectives. PSUs, being contingent on performance, necessitate that the right KPIs are in place to measure that performance. Here's what those KPIs might entail for employees in the legal tech sector:

1. Productivity Metrics

  • Case Handling: In firms with a legal service offering, how many cases can an employee efficiently handle? This includes both litigation support and contract automation.

  • Software Development: For those in tech roles, how often are they releasing new features or updates? What's the turnaround time for bug fixes?

2. Efficiency Indicators

  • Resource Utilization: How effectively does an employee use the resources at their disposal, whether it's legal research tools or software development platforms?

  • Process Streamlining: Does the employee continually seek ways to make workflows more efficient, either by leveraging tech tools or optimizing legal processes?

3. Quality Assurance Metrics

  • Client Feedback: Beyond just satisfaction, get down into specifics. Did the tech solution provide align well with the client’s legal needs?

  • Peer Reviews: Especially in a sector as diverse as legal tech, feedback from peers who understand the complexities involved can be invaluable in assessing the quality of work.

4. Innovation Index

  • Solution Origination: How many new, viable ideas does an employee bring to the table? Remember, in legal tech, innovation can mean a novel software feature or a groundbreaking legal process.

  • Adaptability: The legal tech landscape is fluid. How well does an employee adapt to new technologies or changes in legal regulations?

5. Client Retention and Growth

  • Relationship Building: Beyond the immediate project or case, does the employee cultivate lasting relationships that lead to repeat business?

  • Upselling and Cross-Selling: Can the employee identify opportunities to offer additional services or solutions to existing clients?

6. Compliance and Risk Management

  • Error Rate: In a domain where errors can have legal implications, monitoring the error rate in both tech development and legal processes is important.

  • Regulation Adherence: With evolving tech laws and regulations, ensuring that solutions are compliant is key. How well does the employee keep up?

7. Collaborative Metrics

  • Inter-departmental Projects: Given the dual nature of legal tech, collaboration between tech and legal teams is vital. How effective is an employee in such collaborative endeavors?

  • Conflict Resolution: In the event of disagreements, can the employee constructively resolve them, ensuring that the project's objectives aren't compromised?

Incorporating these KPIs ensures that PSUs are granted in a manner that resonates with the unique demands and opportunities presented by the legal tech landscape. It's not just about rewarding effort but ensuring that this effort is channeled in directions that drive both innovation and compliance, growth and quality.

Methods to Determine PSU Allocations for Employees in Legal Tech Firms

The following methods showcase the diverse approaches legal tech firms can adopt when determining PSU allocations. Whether rooted in traditional performance metrics, relative rankings, or driven by technological advancements like predictive analytics, the overarching objective remains the same: to ensure that PSUs are allocated in a manner that aligns individual achievements with the company's strategic goals and values.

1. Weighted Performance Metrics

In this method, specific KPIs are assigned weighted scores based on their significance to the firm’s objectives. For instance, while a software development team might prioritize innovation index and efficiency indicators, a legal consultancy team might lean towards client retention and quality assurance metrics. The final PSU allocation for an individual is determined by aggregating their scores across these weighted metrics. This approach ensures that PSUs are granted in a manner that aligns with both the individual's role and the company's broader strategic vision.

2. Relative Ranking System

Drawing inspiration from the classic bell-curve approach, employees are ranked relative to their peers based on performance. Those who fall in the top percentile may receive the highest PSU allocations, while those at the lower end might receive fewer or none. While this method can foster a competitive environment, it also emphasizes the importance of standing out and consistently delivering exceptional results.

3. Milestone-based Allocations

In situations where the end goal is clear, PSUs can be allocated based on milestones achieved. For instance, if the objective is to develop a new legal compliance software, milestones could include completion of the software's prototype, beta testing, client onboarding, and successful market launch. Each milestone achieved could trigger a predetermined PSU allocation, ensuring that the rewards are directly tied to tangible achievements.

4. Holistic Portfolio Review

Beyond just metrics and milestones, some firms opt for a comprehensive portfolio review. This involves assessing an employee's overall contribution, including softer aspects like team collaboration, leadership qualities, and adaptability to change. Such a review is often conducted annually and takes into account feedback from peers, supervisors, and even clients. By adopting this method, firms recognize and reward the multi-dimensional value an employee brings.

5. Predictive Analytics and AI Tools

With the rise of advanced analytics, some cutting-edge legal tech firms are employing predictive models to determine PSU allocations. These tools analyze an extensive array of data, from project completion times and client feedback to collaboration metrics and innovation contributions. By forecasting an employee's future value to the company based on past and current performance, these models aim to allocate PSUs in a manner that rewards both consistent performance and potential for future growth.

Methods to Determine PSU Allocations for Employees in Legal Firms

In the complex world of legal practices, how do firms strike the balance between rewarding their attorneys' expertise and ensuring the firm's sustained growth? Performance Share Units (PSUs) serve as a compelling answer. By linking rewards to specific performance metrics, PSUs cultivate a culture of excellence and drive attorneys to consistently elevate their contributions. 

But while every firm might have its unique approach, certain methodologies have gained prominence in the legal sector. Below are some methods used by legal firms to determine PSU allocations for their attorneys:

1. Billable Hours & Revenue Generation

One of the most conventional metrics in legal practices is the number of billable hours. By examining how many hours an attorney bills and the associated revenue generated, firms can proportionally allocate PSUs. Those who bring in more revenue for the firm may be entitled to a more substantial share. This method ensures that attorneys are incentivized to efficiently manage their time and cater to clients' needs.

2. Client Acquisition and Retention

Beyond just billable hours, another pivotal aspect for legal firms is the acquisition and retention of clients. Attorneys who can attract new clients to the firm and ensure their continued association typically add significant value. By monitoring client inflow and retention rates, firms can align PSU allocations to those who act as key growth drivers.

3. Case Outcomes and Success Rate

The outcome of legal cases is inevitably a critical metric. While not every case's success can be attributed solely to the efforts of the attorney, a consistent track record of favorable outcomes can be a basis for higher PSU allocations. This method emphasizes results and the attorney's ability to deliver justice and solutions to their clients.

4. Peer and Client Feedback

Incorporating feedback provides a more holistic view of an attorney’s performance. Colleagues can offer insights into teamwork, work ethics, and contribution to the firm's internal dynamics. Meanwhile, client feedback sheds light on communication skills, understanding of the client's needs, and overall satisfaction. By amalgamating this feedback, firms can ensure that PSUs are granted to those who excel both internally and in client-facing roles.

5. Specialized Expertise and Thought Leadership

In the realm of law, specialization can be invaluable. Attorneys who possess niche expertise or consistently contribute to legal discourse through publications, seminars, or workshops enhance the firm's reputation. Recognizing and rewarding this expertise and thought leadership through PSU allocations ensures that the firm continues to be seen as an industry leader and expert in specific legal domains.

6. Pro Bono and Community Work

Many legal firms value community service and pro bono work. While these endeavors might not directly bring in revenue, they uplift the firm's reputation and demonstrate its commitment to societal betterment. Allocating PSUs based on such contributions can reinforce the firm's values and encourage attorneys to engage more deeply with their communities.

These methods shed light on the various criteria legal firms might consider when determining PSU allocations. While rooted in traditional legal practices, they also emphasize the importance of holistic performance, community engagement, and the continuous pursuit of expertise.

Factors Influencing PSU Allocations

Determining PSU allocations isn't merely about examining individual performance metrics or the prevailing methods in place. Several overarching factors can influence how these allocations are made. Understanding these factors can provide valuable insights into the dynamics of PSU distribution.

1. Market Dynamics

External market conditions, such as economic booms or downturns, can greatly influence PSU allocations. For example, during a robust economy, firms might be more generous with allocations, while during a downturn, they might adopt a more conservative approach, ensuring that only the top performers are duly rewarded.

2. Firm's Financial Health

The overall profitability and financial stability of the firm play a significant role. A year marked by high revenues might see more generous PSU grants. Conversely, during lean periods, the firm might prioritize maintaining its cash reserves and minimizing equity distributions.

3. Strategic Goals and Priorities

If a firm is pivoting towards a new area of law or targeting a specific client demographic, it might adjust PSU allocations to incentivize attorneys working in those particular areas. PSUs can be a tool to align individual attorney goals with the broader strategic vision of the firm.

4. Employee Tenure and Loyalty

Beyond performance, the length of service and demonstrated loyalty can influence PSU grants. Firms might offer more substantial allocations to those who've been with them through thick and thin, viewing it as a reward for their long-term commitment.

5. Competitive Landscape

If competing firms in the legal sector are known to offer generous PSUs, a firm might adjust its allocations to retain top talent and remain competitive in the market. This is especially important in areas where legal expertise is in high demand, and the talent pool is limited.

6. Regulatory and Compliance Shifts

Sometimes, changes in regulatory frameworks can impact how PSUs are granted. For instance, new regulations around equity-based compensation or corporate governance might necessitate a recalibration of how PSUs are allocated.

7. Feedback and Perception

The overall perception of the PSU system within the firm can influence allocations. If employees feel that the current PSU allocation process is not transparent or fair, the firm might need to revisit and adjust its allocation methods to maintain morale and trust.

8. Firm's Growth Trajectory

A firm on an aggressive expansion path might use PSUs as a tool to attract new talent, often granting higher allocations to drive recruitment. Conversely, a more established firm that prioritizes stability might focus its PSU allocations on retaining its current top performers.

Why RSUs Can Be A Good Alternative to PSUs for the Legal Tech Sector

Meanwhile, finding the right incentive structures for employees is paramount, especially in the complex dynamics of legal tech. While Performance Share Units (PSUs) have been a popular choice, many firms are increasingly turning their attention to Restricted Stock Units (RSUs)

Unlike PSUs that are contingent on meeting certain performance criteria, RSUs offer a more predictable vesting schedule. This clarity can provide employees with a stable outlook on their equity-based compensation, reducing anxiety tied to fluctuating performance metrics.

While PSUs tie rewards directly to performance metrics, RSUs provide legal tech firms with greater flexibility in determining vesting conditions. For example, vesting might be linked to individual milestones, project completions, or simply time with the company, allowing for a more tailored approach.

Legal tech, with its adaptability and innovation, sees RSUs as a potential alternative to the traditional PSU model. While both have their merits, RSUs offer a blend of stability, predictability, and long-term vision, making them an increasingly attractive choice for firms aiming to stand out in the crowded legal tech arena.

As a legal tech startup, Upstock believes in the power of performance incentives in ensuring quality client service among companies that require equity compensation management. For more info on how we use RSUs in creating a more equitable business ecosystem, book a demo today.

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ABOUT THE AUTHOR

Casey Fenton

Founder, Upstock & Couchsurfing, AI and Equity Innovator

Casey Fenton, the founder of Upstock & Couchsurfing and an AI and equity innovator, has revolutionized how we perceive and implement equity in the workplace. His foresight in creating platforms that not only connect people but also align their interests towards communal and corporate prosperity has established him as a pivotal figure in technology and community building. Casey speaks worldwide on topics including ownership mindset, worker equity, With Upstock and Couchsurfing, he has demonstrated an unparalleled expertise in harnessing technology for the betterment of community interaction and organizational benefits.

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