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December 15, 2009 12:00 PM

Wilmer Freezes Salaries, Breaks Lockstep

Posted by Zach Lowe

Wilmer Cutler Pickering Hale and Dorr is unveiling a new compensation system designed to break away from lockstep, encourage alternative career paths, and shift a larger chunk of lawyers' pay from their base salary to their bonus, according to firm higher-ups. 

The new system, unveiled today after two years of planning, will be phased in through 2012, according to William Lee, the firm's co-managing partner, and Carol Clayton, the firm's assistant managing partner. The crux of the change involves dividing nonpartners into several tiers and linking each of those tiers to a set base salary, Lee and Clayton say. Within those tiers, pay will vary greatly depending on individual bonuses. Those bonuses will be merit-based and will not be linked to seniority or billable hours. The goal is to pay top performers in each tier more than they would make under Wilmer's current lockstep system, Lee says. 

The nonpartner tiers would include junior associates, senior associates, counsel, and special counsel. The firm has not set base salaries for those tiers, but the firm expects those base salaries "will remain competitive with salaries at the best firms," Lee says.

Still, step one of the process is to freeze all associate salaries for 2010 at 2009 levels, with the exception of second-year associates. The firm is keeping first-year salaries at $160,000 and will pay second-years $165,000 to differentiate them from first-years. For those associates affected by the freeze, the change means third-years will earn $170,000, fourth-years make $185,000, and fifth-years will bring in $210,000, according to a memo the firm is distributing today.

The second step involves what Clayton terms a "compression" of salaries. The goal is to have everyone within a tier earning the same base salary by 2012, Clayton says. By 2012, an excellent third-year associate in the "senior associate" tier should earn the same base pay as a sixth-year associate in the same tier, Clayton says. This naturally involves holding the more experienced associate's salary steady (or close to it) between now and 2012 while raising the less-experienced lawyer's salary up to the more senior lawyer's level, Clayton says. 

It is possible that older associates will see very little increase in pay over the next two to three years as Wilmer phases in the tiered system. But the firm's goal is to implement the system without cutting anyone's salary, Lee and Clayton say. "We don't want to see anyone take a reduction," Clayton says. 

Again. Wilmer has not settled on the base salary for each tier. But one thing is for sure, the firm says: That base salary will comprise a smaller chunk of a lawyer's total compensation under the new system. The internal memo puts it this way: "A larger percentage of each lawyer's total compensation will be built into the annual performance bonus," the memo says. "This system obviously will result in greater differentiation in compensation, allowing our strongest performers to earn more than they could at peer firms that, like WilmerHale, peg their compensation at or near the top of the market."

Lee and Clayton stress that the firm began planning for this before the scope of the recession became apparent, and that the change in pay structure is one prong of a broader overhaul in the firm's philosophy. Moving away from a simple associate-equity partner structure and adding more job titles recognizes that some high-quality lawyers may want a different career path, Lee says. The firm recently introduced the title of senior partner, intended for older partners who want to spend part of their time on something other than their normal corporate work, Lee says. Equity partners choosing that route (including one set to leave a full-time practice for a part-time job as a graduate school instructor, Lee says) will be subject to a new compensation arrangement crafted with the firm. (Lee would not say whether every partner who chooses the "senior partner" title would give up their equity in the firm.)

Beyond that, the move away from lockstep and billable-dependent bonuses reflects the firm's own shift away from a model defined by the billable hour, Lee and Clayton say. At least 60 percent of Lee's own work is billed in a form other than by the hour, and the firm recognizes the need to wade even more deeply into alternative fees. Moving away from billables means that the firm has to come up with new standards for evaluating its associates. The firm is putting in place an intensive new mentoring system to inform associates about the process and make sure a single partner keeps a close watch on each associate's development, Lee and Clayton say.

"The three pillars of law practice--the partner-associate model, lockstep, and the billable hour--we decided about two years ago that all of that had to change," Lee says.

Whether the new tiered-system succeeds in developing better associates will depend, in part, on whether firms prioritize associate development, says Bruce MacEwen, president of the online publication Adam Smith, Esq. and an informal adviser to Wilmer as the firm developed its plan. MacEwen says there is a school of thought--one to which he does not subscribe--that argues the move away from lockstep at some firms is a thinly veiled way to cut costs. He does not believe that to be the case at Wilmer, he says. "The way the firms actually implement this will separate the men from the boys," MacEwen says. "The proof will be in the pudding. The firms that shortchange the training will be exposed as poseurs down the road."

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From a career development perspective, single tier partnerships and lockstep compensation have never made sense. Waiting 10 years to find out if you have made it to the next step is inconsistent with the need for recognition that we all have.

Accounting firms have understood this for a long time and have put in place multiple tiers of advancement.

Similarly, the changes being adopted by Wilmer also reflect what many of us in the legal career business have known for a long time: i.e. that different lawyers want different things from their careers and some are willing to accept lower compensation for a lesser commitment.

More AmLaw100/200 firms are sure to follow soon.

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