Law firm compensation looks a lot like a game of Simon Says. Simon (or Cravath) Says pay all first years x. Simon Says pay all first years y. Pay first years based on their performance. Tsk, tsk . . . I didn’t say “Simon Says.”
Most of the BigLaw firms follow the leader, paying the same compensation and bonuses based strictly on class year. But several firms have said so long to BigLaw Simon and ventured into merit-based compensation models. A recent panel at NALP called “How Is That Performance-Based Compensation Working for Ya” discussed law firm compensation based on competencies. Three law firms—which all feature some type of performance-based compensation—were represented on the panel: Orrick, Paul Hastings and Fenwick & West (notably, the Director of Professional Development at the now-dissolved Howrey was originally scheduled for the panel). Moderated by David Cruickshank, Consultant at Kerma Partners, the panel included Siobhain McCarthy, Managing Director of Global Attorney Development at Paul Hastings, Carolyn Bortner, Director of Lawyer Development at Orrick and Cheri Vaillancour, Director of Professional Development & Legal Personnel at Fenwick & West (for a fantastic summary of the panel, check out Above the Law’s David Lat’s post, linked below).
After Cruickshank discussed several types of compensation models, ranging from pure lockstep to lockstep plus a merit-based bonus to a mix of lockstep and merit-based to a completely merit-based system, each panelist explained the compensation system at her firm:
•Paul Hastings: Lockstep base compensation plus a merit-based bonus (based on competencies).
•Orrick: Junior attorneys in their first three years receive lockstep base compensation plus a merit-based bonus. Mid-level and senior associates receive merit-based compensation.
•Fenwick & West: Merit-based compensation (based on competencies) with three levels of associates.
These firms may be in the minority, but are they on to something when it comes to associate development? According to Cruickshank, “lockstep and hours-based programs do not reward development of the multiple skills and investments that we seek from partners. Inflexibility of hours . . . makes it difficult to create customized career paths.” As an example, Cruickshank described a senior associate who had turned down a non-billable writing opportunity offered to him by a partner because he had to meet a certain number of hours to get his bonus. As Cruickshank explained, lockstep compensation will award associates, regardless of whether they take advantage of opportunities and develop the qualities and expertise necessary to be good partners.
Of course, most associates are not on the partner track, but should it be a firm’s ambition to groom all of its associates nonetheless? Or, at the very least, does a merit-based system provide associates with a clearer view of what they need to achieve?
Take Paul Hastings as an example. According to McCarthy, the competencies that the firm has introduced to weigh performance not only “drive behavior in the firm” but they also allow the firm to see “where the associates fall.” The competencies “are a management tool—a way to continuously improve, expand and manage delivery of services to clients,” said McCarthy. The firm starts early with its competencies, integrating behavioral questions into its interviewing process to determine whether candidates will succeed at the firm. “The bottom line is you have to perform well at a law firm,” said McCarthy. In turn firms “have to reward performance, or you will lose your top performers.”
What do you think? Is keeping the very best a matter of forking over top compensation? Will great associates, who aren’t at the very top but are far from the bottom be turned off by a system that puts them a notch below compensation-wise? Or will setting specific competencies provide associates with a clear picture of their goals and motivate them to perform their best?
Above the Law source
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