Yesterday we reported that DLA Piper will be moving away from a lockstep system. The firm will implement a three-tiered seniority and compensation structure, in which 15% of associate salary will be withheld until the end of the year — pending a performance review that will be graded on a curve.
We promised you further analysis and reaction — but first, a correction. Yesterday I said that the “freeze is still on,” referring to the fact that DLA froze salaries at 2008 levels and will be carrying that scale forward to 2010. That’s not entirely accurate. Multiple tipsters and commenters pointed out that after freezing salaries in 2008, DLA cut salaries in 2009.
That’s correct. We reported on DLA’s 10% salary cut back in May. The National Law Journal puts DLA’s new three-tiered system into the proper perspective:
Salaries for associates in Level 1 will start at $145,000 in major markets. Level 2 salaries will range from $170,000 to about $200,000. Level 3 salaries will be around $250,000. Associates generally will remain at a certain level for two to four years. The new pay plan will affect approximately 500 associates.
Compare those numbers to the Orrick structure we reported on last week. Orrick is still starting at $160,000. And their “managing associates,” the Orrick equivalent of DLA’s Level 2 associates, start in the range of $185,000 – $205,000. Only at the top levels do the salaries start to match-up.
But that is not taking into account DLA’s 15% salary withholding, which is what most of our readers and commenters want to talk about. Let’s take a closer look at the withholding after the jump.
A DLA spokesperson maintains that the new system will not result in an overall decrease in the amount of money the firm pays to its associates (notwithstanding the firm’s move off of the $160K pay scale). But many associates who emailed Above the Law are viewing the new structure as a thinly veiled pay cut.
Many associates drew our attention to portions of the DLA FAQ page about the new system, citing them as “proof” that DLA was simply cutting salaries. For example:
With whom can I speak if I have concerns about meeting my personal financial obligations in 2010 in light of my reduced bi-weekly pay?
To help address any short-term financial concerns that you may have as a result of our restructured compensation program, the Firm has contacted various banks that have expressed a willingness to provide short-term credit facilities to our associates, in accordance with the bank’s own policies. If you are interested in pursuing this option, or have any other question relating to your own financial circumstances, you may contact your local HR rep who can provide you with contact information regarding credit facilities that may be available for associates at banks with whom the Firm has a long term relationship, and who can also provide a brochure regarding the Employee Assistance Program (EAP). Your interaction with the EAP is completely confidential. If you want to connect with them directly, go to guidanceresources.com.”
One tipster quipped:
Great, now I can take out more loans to pay off my student loans.
As I mentioned yesterday, one factor to consider is the time value of money. Even if you assume that 70% of the firm’s associates will receive their entire “targeted compensation,” the plan still amounts to the firm’s associates giving the firm a 12-month, no interest loan. In that light, we can see why some associates are annoyed at the firm’s suggestion that they take out loans — which will have to paid back with interest — to cover the money the firm is withholding from them.
On the other hand, this is just a little taste of what it is like to be compensated as a partner. And remember, a little over a year ago DLA required a capital contribution from all of the firm’s non-equity partners.
After you get beyond the withheld pay, many were still worried that the curved performance review DLA plans to implement will send the wrong message to clients and will turn DLA into a harsh working environment. One commenter put it like this:
So DLA expects that 30% of its associates will either fail to meet expectations or be entirely unsatisfactory.
This sends the message that DLA:
(a) has a terrible recruiting program;
(b) believes it is impossible for every attorney to contribute to the firm’s success; and
(c) encourages an atmosphere of competition vice collaboration.
It does strike me as odd that a firm would publicly say that in any given year a full 30% of its associates were performing below expectations or worse. One would expect that if a firm is recruiting the right caliber of lawyer and training that talent appropriately, then the firm wouldn’t need to mandate that 30% of its people were not up to snuff.
But it’s undeniable that some people thrive in a more competitive environment. We know from law school what a curve does to certain people. And we know that some people thrive in a situation where one cannot rise unless others fall. Can you really blame DLA for trying to get the most out of its people by using a strategy that works at law schools all around the nation?
According to DLA, they are not just using the stick. The firm contends that a majority of its associates will end up earning more under the new system than they would have under the old system. So there is the potential of a reward here.
The overall goal of any pay structure is to motivate the best talent to do the best work. Only time will tell if DLA’s new system is a success on that front.
DLA Piper to Abandon Lockstep Under New Associate Compensation Plan [National Law Journal]
Earlier: DLA Piper: Bringing the Curve to Biglaw
DLA Piper Gives Back 10% of the Salary Cut
Orrick’s New Compensation Structure
DLA Piper Changes Partnership Structure