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November 17, 2009 6:00 AM

The Shifting Associate Paradigm

Posted by Ed Shanahan

By Dan DiPietro, Lisa Keyes, and Laura Saklad

The legal industry loves its traditions, and one of the most entrenched--embraced by virtually every Am Law 100 firm--is lockstep associate compensation. But over time, even the best traditions can become anachronisms, and that is the case with lockstep. For several years, the Law Firm Group (LFG) at Citi Private Bank has been urging firms to get rid of lockstep, in which associates receive an automatic annual pay raise, promotion, and bonus. In its place, the LFG advocates a performance-based program, in which associates are paid and promoted according to their mastery of skills and competencies, and receive bonuses based on individual and firm performance.

Until recently, the LFG's campaign to kill lockstep fell largely on deaf ears. But the recession brought home many of the problems inherent in lockstep. In the last year, several Am Law 100 firms have announced that they have shifted to, or are in the process of shifting to, a performance-based program. An LFG survey in July revealed that almost half of the top 50 firms in The Am Law 100 said they plan to switch to some form of performance-based system.

But the decision to consider abandoning lockstep is just the first step. The hardest part is yet to come. Designing and executing a successful performance-based system aligned to a particular firm’s strategy takes time--a minimum of 12 months--due to significant adjustments in hiring, staffing evaluation/compensation, and professional development practices. The changes can require major cultural shifts and can even run the risk of costing, rather than saving, the firm money. Still, for many firms, once some form of a merit-based program is up and running, the benefits will outweigh the costs.

At a minimum, four key elements will help ensure the success of a performance program. 

First, firms must break out of the two-tier associate/partner paradigm and create a variety of timekeeper categories. This will enable firms to broaden hiring practices beyond the summer associate/partner-track associate model that helps create a lockstep mentality. 

Second, firms need to adopt a more sophisticated approach to work allocation that takes into account client goals and fee arrangements, as well as lawyer availability, rate, skill set, and career path.

Third, performance-based programs require a robust evaluation and compensation system that incorporates written performance expectations, individual goal setting, a culture of feedback and evaluation, a thoughtful compensation-setting process, and a strong professional development program. 

Last, such systems require significant leadership and management dedication to reap the intended performance benefits and limit development of intrafirm strife over compensation and advancement opportunities.

Click here to read the full report, which includes the case for performance-based pay and advancement systems and the elements required in implementing a successful performance-based system.

Dan DiPietro is the advisory head of the Law Firm Group of Citi Private Bank. Lisa Keyes is the professional development partner at King & Spalding. Laura Saklad is the chief lawyer development officer at Orrick, Herrington & Sutcliffe. This article is a summary of the views of the authors presented during a panel on lockstep and performance-based systems at a NALP/ALI-ABA Professional Development Institute. 

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While many firms are shifting to a performance based system, it is only an excuse to lower the total compensation of associates. At my firm, the reality is that partners have little time or inclination to create a robust evaluation and compensation system, written performance expectations are almost non-existnet, individual goal setting is not even a consideration and although they keep tyring to promote a culture of feedback and evaluation, a thoughtful compensation-setting process, and a strong professional development program, again there is little support for such things. Firms will say what they say but continue to do what they do. In the end the associates will continue to work hard but just get paid less with smaller opportunities for advancement.

Until law firms dump the committee system of governance, by which well-intentioned amateurs try to run what is often a multi-hundred billion-dollar business (in their spare time, no less), no modern business- or management practices will gain much traction.

At some point, lawyers may acknowledge that they are law practitioners only, and that that skill set does not prepare them to run a business of any type or size. It doesn't preclude it, certainly, but it is not particularly good preparation.

If you're trying to bill 2000+ hours per year, you're not even allowing enough time to sell sufficient business to give yourself any standing in your firm. How are you going to find time to learn how to operate a modern business -- much less actually operate one?

IMO, lawyers' business awareness and acumen is cripplingly low. That's not criticism, but an empathetic observation borne of doing sales coaching with many thousands of partners over 18 years. Given the incredible time demands they already face merely as practitioners, and widespread lack of interest in business, expecting greater acumen from them is silly.

Sorry, Dan, but it ain't gonna happen in the short term. Mark's comment above is likely to be proven prescient.

There is one other change that goes hand in hand with a performance based base salary system. Firms need to leave their up and out system in the rear view mirror. Otherwise, lawsuits will be on their doorstep down the road. best option is to set flat class salary rates, even if tiered based on skill sets, and couple this compensation model with a merit based bonus plan on a year to year basis.

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