Killing Lockstep, Salary Freeze

DLA Piper: Bringing the Curve to Biglaw

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If you thought you left the curve behind when you graduated law school, think again. DLA Piper has decided to throw its hat into the killing lockstep arena. In a long memo released to associates this morning, DLA outlines its intention to withhold a greater percentage of associate compensation until the end of the year. Associates will have an opportunity to get this money back, if they perform well on their performance reviews.
But the performance reviews will be curved, bringing a sense of the grading competition and bitterness from law school and adding it to firm life.
Let’s jump into the details, after the jump.


The memo is extraordinarily detailed (please read it in full below). Essentially, DLA is splitting up its associates into three different classes:

Instead of traditional lockstep advancement, the associate career path
will be characterized by three broader and more flexible levels of development: Level I,
Level II, and Level III. Each Level will in turn consist of two to three Steps through which
an advancing associate will progress. Promotions between and within Levels will be
performance-based, not tenure-based.

This is similar to what Orrick is doing with its new compensation structure.
But, unlike Orrick, DLA will be withholding a significant portion of associate compensation until the end of the year. Can you say “time value of money?”
And it’s not like the compensation will magically return to associates at the end of the year. They’ll have to earn it, through their performance reviews. The better you do on the review, the more of your money you’ll get back at the end of the year.
Interestingly enough, this system of partial withholding of compensation is more similar to how partnership comp works. See, e.g., the discussion of partner comp back in this post (regarding Seyfarth Shaw).
There is a curve, at least for most Level I and II associates. Here’s the pertinent part from the DLA memo:

The output of the Annual Review Process will be a comparative Performance Rating (on a four-point scale for all associates beyond the entry-year) assigned to each associate by the Associate Evaluation and Compensation Committee (“AEC”) in consultation with our Practice Groups. The Performance Rating will be driven by the associate’s Competency Level with possible adjustments upward or downward based on the associate’s Contribution Factor. The objective of this more holistic approach to defining and assessing associate performance is to focus associates and partners on creating value for clients and for the Firm and on investing in an associate’s career development.

For Levels I and II (with the exception of entry-year associates – Level I, Step 1), we expect that roughly 20 percent of associates will receive the top Performance Rating of “4,” 50 percent will receive the expected Performance Rating of “3,” 20 percent will receive a “2” indicating their performance is not fully meeting expectations, and 10 percent will receive a “1” indicating their performance is unsatisfactory – with minor differences possible in distribution within individual Practice Groups. For Level III, we expect a somewhat different distribution with few associates, if any, receiving a “1”. Entry-year associates (Level I, Step 1) will continue to be assessed on a “Pass/Fail” basis with an expectation that the vast majority will “Pass.”

Under this new plan, the firm expects to grade 30% of its associates as not meeting expectations, while 50% are meeting expectations. If we think of “1, 2, 3, 4” as corresponding to “D, C, B, A” letter grades, you can see the outlines of a “B-curve.” That’s pretty standard for law schools. But for law firms, the only thing this reminds us of is Kirkland’s “above class”/”with class”/”below class” system.
And doesn’t that sound like fun.
How you do under this new competitive system will determine your pay. DLA is setting a “target compensation” goal. For most people, that will be the same salary they received in 2009 (which of course was the same salary they received in 2008; the freeze is back on, guys). DLA will take 15% of that target compensation out of base pay. Associates who receive a “4” or a “3” on their performance review (which is again curved to represent about 70% of DLA’s class) will get all 15% of that salary back at the end of the year.
Associates who get a “4” or a “3” will also get a bonus. We presume that would be the standard market bonus that (for instance) Cravath associates are receiving. There is no longer an hours requirement for the market bonus; you just have to be better at “performance” than the bottom third of associates at the firm.
Associates who receive a “2” will get only 5% of their money back. But they will not get a bonus.
The ten percent of associates who score a “1” will not receive their 15% salary back, will not receive a bonus, and will need God’s mercy on their souls.
First years will also not receive a bonus.
We’ll have more analysis and reaction to DLA’s plan later. If you’re at DLA and have some thoughts on this plan, please email us.
For now, we want to hear what you think, readers. Read the full memo below, and opine in the comments.
DLA Piper Associate Compensation Model [PDF]
Earlier: Orrick’s New Compensation Structure

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