We’ve devoted a lot of coverage to the few firms that are moving away from a lockstep compensation system. One consistent theme has been that the move away from lockstep appears to be an attempt to reduce overall associate compensation.

Not so at Bingham McCutchen. The firm just released its new compensation plan. Calling it a hybrid approach, Bingham is keeping lockstep compensation for base compensation but make bonuses heavily merit based. Our sources tell us that while nothing has yet been finalized, the firm’s intention is to hold the line on base compensation.

“Merit Lockstep” Base Salary Structure

After significant review, we have decided to modify our current associate base compensation lockstep structure slightly, moving to what we are calling a “merit lockstep” approach. We intend to retain a salary class level system. All salary class levels will remain subject, as always, to future market changes as well as our own internal determinations.

I’ve been critical of firms that announce they are moving to a merit-based system, without actually explaining what merit-based means. But at Bingham the firm seems to have a concrete plan for its new merit bonuses.

Details and a reader poll after the jump.

While Bingham’s new bonus structure will have an hours component, the firm is adding new merit based factor’s to its bonus decision:

Merit Bonus System

Consistent with our drive to a more merit-informed approach, Practice Area and Group Leaders will also have greater discretion at year-end in making bonus determinations. While billable hours will continue to play a significant role in the awarding of associate/counsel bonuses, and we will maintain firmwide standards for merit bonus consideration, our practice leaders will now have discretion to reward top performers for the qualitative and quantitative value they deliver to our clients. The financial contribution of associates/counsel will therefore be a factor in bonus eligibility and award determinations. It is thus expected that bonuses will be more heavily weighted toward mid-level associates and counsel, as an attorney’s profitability — and corresponding value that he/she provides to our clients — generally increases with his/her years of experience and expertise gained.

Further, our new merit bonus system will recognize critical though less tangible performance measures, including commitment, teamwork, and overall firm citizenship as important factors in determining bonus eligibility at all class levels and in all economic cycles. In addition, bonus award amounts will continue to be strongly influenced by market data, as our competitiveness in the top tier of U.S. national/global law firms remains a priority for the firm. Necessarily, an associate’s or counsel’s total compensation award (base salary plus any potential bonus award amount) will also be considered in assessing his/her bonus award eligibility and the amount thereof, in light of the total compensation awards being paid to similarly situated associates/counsel at our peer firms.

You can read Bingham’s full memo below.

As we understand it, Bingham McCutchen conducted extensive outreach with its partners and associates before adopting this new plan. It appears that this hybrid approach is what the people want.

But perhaps even more importantly, it could be that this hybrid approach is what the clients want. Be de-emphasizing billable hours as a consideration for the bonus, the appearance of Biglaw associates padding hours to make an artificial bonus target should be squashed.

You’ll remember that Bingham is currently in litigation with a grumpy client over fees. Will hybrid programs like Bingham’s make clients stop worrying about how Biglaw associates are trained and compensated?

Beyond any public perception benefits, sources tell us that the stated goal of Bingham’s new approach is to allow the firm to retain and reward its talent pool.

Of course, like so many merit-based plans, it won’t work if partners don’t buy in and spend more time on building associates’ skills and contribute more substantive feedback to the associates. Bingham appears to be aware of that important aspect and has gotten the commitment of practice group leaders to really focus on the associate development and review process.

As I said, this plan came out of consultation with the firm’s partners and associates. It’s what attorneys at Bingham want. Is it what you want? Vote in our reader poll below.

Read the full Bingham memo below.

BINGHAM MCCUTCHEN — MEMO — MERIT-LOCKSTEP COMPENSATION SYSTEM

FROM: Anthony J. Carbone
RE: Associate & Counsel Compensation

Over the course of the past year, in response to the global economic downturn, many law firms have made significant changes in their associate recruiting practices and compensation systems. Firms have implemented and continue to adopt a variety of approaches, including across-the-board salary cuts, individual hours-based salary reductions, flexible salary tiers and merit compensation structures.

In January, we indicated that we would continue to monitor the market and would study the associate compensation issue internally, so as to develop the best approach for Bingham going forward. Accordingly, during the course of the last several months, a number of our senior staff have been working closely with Firm and Practice Area Leadership and other partners to carefully review industry and client trends with regard to attorney utilization and compensation.

As all of you know, the global law firm market is extremely competitive and there continues to be significant client pressure on billing rates and costs. Balancing our market competitiveness with prudent financial management is a fine line we must always walk, as is providing fair value to our clients while appropriately compensating all of you — who not only deliver great service to our clients but contribute substantially to the quality of our workplace. In light of all of these important considerations, we have decided to restructure our associate/counsel compensation and evaluation process, for implementation during the 2009 year-end review cycle. We believe these changes represent a measured approach, in keeping with the firm’s philosophy of exercising financial discipline while continuing to heavily invest in our talent base.

“Merit Lockstep” Base Salary Structure

After significant review, we have decided to modify our current associate base compensation lockstep structure slightly, moving to what we are calling a “merit lockstep” approach. We intend to retain a salary class level system. All salary class levels will remain subject, as always, to future market changes as well as our own internal determinations.

In our conversations with practice leaders as well as many of you, the desire to maintain the gradualism and relative predictability of an overall lockstep approach was clearly expressed. We are nevertheless keenly aware of current marketplace conditions and believe that to maintain our continued success, we need to incorporate a merit component into our overall lockstep structure. We believe this approach demonstrates our continued and substantial commitment to investing in our partnership-track attorneys, while giving Practice Area and Group Leaders greater discretion to make salary class progression determinations based on the individual performance of an associate or counsel. We fully expect the vast majority of associates/counsel to continue to achieve annual step increases in this merit lockstep system. However, more disciplined analysis will be applied during the evaluation process to ensure that an attorney’s performance supports a merit step increase.

Merit Bonus System

Consistent with our drive to a more merit-informed approach, Practice Area and Group Leaders will also have greater discretion at year-end in making bonus determinations. While billable hours will continue to play a significant role in the awarding of associate/counsel bonuses, and we will maintain firmwide standards for merit bonus consideration, our practice leaders will now have discretion to reward top performers for the qualitative and quantitative value they deliver to our clients. The financial contribution of associates/counsel will therefore be a factor in bonus eligibility and award determinations. It is thus expected that bonuses will be more heavily weighted toward mid-level associates and counsel, as an attorney’s profitability — and corresponding value that he/she provides to our clients — generally increases with his/her years of experience and expertise gained.

Further, our new merit bonus system will recognize critical though less tangible performance measures, including commitment, teamwork, and overall firm citizenship as important factors in determining bonus eligibility at all class levels and in all economic cycles. In addition, bonus award amounts will continue to be strongly influenced by market data, as our competitiveness in the top tier of U.S. national/global law firms remains a priority for the firm. Necessarily, an associate’s or counsel’s total compensation award (base salary plus any potential bonus award amount) will also be considered in assessing his/her bonus award eligibility and the amount thereof, in light of the total compensation awards being paid to similarly situated associates/counsel at our peer firms.

Changes to the Evaluation Process

To accomplish the foregoing changes in our associate/counsel compensation system, we will be making commensurate changes in our evaluation process. We will be revising the annual evaluation forms, process and the performance review documents that are delivered to each of you. Our goal is to provide our Practice Area and Group Leaders with the qualitative and quantitative information necessary to effectively and efficiently make the compensation determinations discussed herein, and to provide clear and constructive performance feedback to each associate/counsel. During the coming weeks and months, we will be providing additional information about the specific changes to our evaluation process.

* * * * *

Bingham prides itself on prudent fiscal management, smart adaptations to market changes, as well as the recruitment and retention of the best legal talent. We strongly believe that the compensation and evaluation system changes announced herein are a measured but necessary response to the substantial shifts in our economy during this past year, their financial impact on our clients, and the resulting changes in our industry. We intend to hold a firmwide meeting this week to answer many of the questions we expect you will have. Specifics for that meeting will be forthcoming. In the interim, please contact me, Dan Jackson or your Attorney Development Manager if you would like to speak before then.

A.J.C.

Earlier: Bingham’s Billing Battle