The Day That Lockstep Died
(to the tune of “American Pie”)
My, my, pushin’ lockstep aside,
They say merit — do they mean it? ‘Cause my raise has run dry.
But top-tier firms are not inclined to comply:
Sayin’, we’re not sure if this s**t will fly; we’re not sure if this s**t will fly.
What started out as a trickle is turning into a flood. Orrick and DLA Piper have already announced new associate compensation models for 2010 — and now WimerHale wants in on the action. The firm announced the change in a memo to all of its associates:
The Firm has decided to transition to a merit-based compensation program for associates and counsel in our U.S. offices. This afternoon we will hold local office meetings to discuss the details with you followed by an open forum for questions. Shortly you will receive a calendar invitation for this meeting, but first we wanted to provide you with background on the plan, the timing, and our thought process.
Before we lay out the details of the new model, it is important to recognize that this step is one that falls within a much larger framework. As you have heard us say before, whether at the State of the Firm address or in smaller group settings, the traditional structure and method of doing business for law firms is changing and needs to change.
The plan will be phased in through 2012 — but why wait until 2012 to address labor costs, when you can freeze associates’ salaries for 2010? Today’s WilmerHale announcement includes the news that the firm will be freezing associate salaries (except for second-year associates, who will be bumped up to $165K).
Additional details on the new compensation scheme and the full memo, after the jump.
WilmerHale is calling its new compensation structure the “Career Advancement Program,” or “CAP.” Like Orrick and DLA, the firm will be breaking its associates out into various tiers:
Under our merit-based compensation model, we will have a total compensation package for all Associates, Senior Associates and Counsel that reflects individual skill level, is highly competitive, and rewards the value of an individual lawyer’s overall contributions each year. The transition to the new system will occur over two to three years and will be implemented in all of our U.S. offices. We have not decided whether or when to introduce a similar system in our offices outside the U.S. The compensation package will continue to consist of base salary and the annual performance bonus. Both the base salary and annual bonus component will reflect CAP’s focus on the individual lawyer.
Many lawyers were liberal arts majors in college, so they should be comfortable with the array of soft and nebulous factors that will now determine how much they get paid:
With respect to the annual performance bonuses, we currently envision that over time, and beginning in 2010, a larger percentage of each lawyer’s total compensation will be built into the annual performance bonus. Bonus determinations will be based on firm performance, quality of substantive work, quality of client service, efficiency, productivity, teamwork, collegiality and other “citizenship” factors. The bonus system will align well with our clients’ focus on value delivered, rather than simply hours billed. 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.
Wait a minute, is WilmerHale seriously saying that it’ll pay people who are nice — sorry, “collegial” — more than they will pay assholes who simply keep their heads down while pumping out the hours? Really? That sounds kind of awesome.
It also sounds kind of terrible for associates who aren’t connected with the right people in the firm to get the “collegial citizen” bonus bump.
We should expect more and more firms to take this new non-lockstep model out for a spin. If you don’t like it, I guess you’ll just have to get a job at Davis Polk or S&C or some other top NYC firm that seems quite comfortable paying people based on years of experience instead of a more subjective assessment of such factors as “efficiency, productivity, [and] teamwork.”
Read the full Wilmer memo below.
WILMERHALE — MEMO — ASSOCIATE COMPENSATION MODEL
Date: December 15, 2009
To: U.S. Associates, Senior Associates, Counsel, and Special Counsel
From: William F. Lee, William J. Perlstein
Re: Transition to Merit-Based Compensation
The Firm has decided to transition to a merit-based compensation program for associates and counsel in our U.S. offices. This afternoon we will hold local office meetings to discuss the details with you followed by an open forum for questions. Shortly you will receive a calendar invitation for this meeting, but first we wanted to provide you with background on the plan, the timing, and our thought process.
Before we lay out the details of the new model, it is important to recognize that this step is one that falls within a much larger framework. As you have heard us say before, whether at the State of the Firm address or in smaller group settings, the traditional structure and method of doing business for law firms is changing and needs to change. We acknowledge that all of the following are simply no longer going to work:
* The traditional law firm structure of associates and partners;
* The traditional lockstep model of compensation; and
* The traditional method of strictly billing by the hour.
Each of these three considerations implicate at a fundamental level how we organize ourselves, how we are compensated, and how we build relationships with our clients. Recognizing these imperatives, we convened our Structure Task Force about two years ago to recommend a long-range talent management strategy. Since then we have implemented our Career Advancement Program (CAP), which includes a more flexible career path structure, a robust mentoring program, and a competency-based approach to professional development. We have also aggressively pursued alternative fee arrangements. The step we are announcing today will align our attorney compensation system with CAP’s focus on the individual attorney and with our clients’ focus on the value of the services we deliver to them.
Under our merit-based compensation model, we will have a total compensation package for all Associates, Senior Associates and Counsel that reflects individual skill level, is highly competitive, and rewards the value of an individual lawyer’s overall contributions each year. The transition to the new system will occur over two to three years and will be implemented in all of our U.S. offices. We have not decided whether or when to introduce a similar system in our offices outside the U.S. The compensation package will continue to consist of base salary and the annual performance bonus. Both the base salary and annual bonus component will reflect CAP’s focus on the individual lawyer.
With respect to base salaries, we envision that each attorney’s base salary ultimately will be linked to his or her level in our career path structure (Associate, Senior Associate, Counsel, Special Counsel) and that the attorney’s level in turn will be based on the attainment of the competencies under development as part of CAP. The first step in this process will be resetting our base compensation scale in 2010. Except for second year associates, whose compensation will increase by $5,000, we will hold Associate, Senior Associate and Counsel base compensation at 2009 levels. First years will start at $160,000.
Our salary scale in 2010 will be as follows:
2010 Base Compensation Levels
1st Years: 160,000
2nd Years: 165,000
3rd Years: 170,000
4th Years: 185,000
5th Years: 210,000
With respect to the annual performance bonuses, we currently envision that over time, and beginning in 2010, a larger percentage of each lawyer’s total compensation will be built into the annual performance bonus. Bonus determinations will be based on firm performance, quality of substantive work, quality of client service, efficiency, productivity, teamwork, collegiality and other “citizenship” factors. The bonus system will align well with our clients’ focus on value delivered, rather than simply hours billed. 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.
There will be no change to the bonus program for work performed during 2009 and 2009 bonus determinations and payments will be made in January of 2010. We have not yet decided on the 2009 bonus levels.
Our overall objective in moving to merit-based compensation is to motivate and reward strong performance at all levels. Linking base salaries to career levels will incentivize individual lawyer’s ownership of their own professional development, and better align compensation with individual skill level. Our new bonus program will recognize and reward lawyers for the qualities and contributions that both we and our clients value most. As you know, we began having discussions with associates and counsel regarding a merit-based compensation concept about 18 months ago. At that time many of you told us that it would be important to strengthen our mentoring, feedback and evaluation processes before modifying our compensation program. Now that the essential building blocks of CAP are falling into place, we will be well-positioned to support the smooth, effective, and fair implementation of a merit-based plan next year.
We know that this individualized approach to compensation will be more time-intensive and demanding than a lockstep program. The phase-in approach discussed above will allow us to improve and fine-tune our processes as we gain experience with the new program, ensuring that we consistently make fair and accurate assessments that will give you confidence in the system. The phase-in is also designed to avoid any reduction in a lawyer’s base salary as we build a larger percentage of total compensation into the bonus component over the next two to three years.
We also know that work remains to be done in fully implementing CAP. Currently, we are developing competencies in order to clarify and articulate more clearly our expectations at each career level. As we shared with you last month, Associates, Senior Associates and Counsel will participate in interviews and focus groups as we develop the competencies. Work on competencies will be complete in March 2010 and we will hold education sessions on them in advance of the Spring evaluation process. We will also reflect the competencies in the evaluations.
Our Firm’s reputation is founded on the excellence of our lawyers. We remain committed to recruiting exceptional lawyers, investing in their career development, and compensating them commensurate with their contributions and the market. We appreciate your many contributions to the Firm and look forward to working with you in the coming year.
Bill and Bill
Elie for poet laureate.
Thanks, MysTTTal, for letting me know to what tune I was supposed to sing that retarded jingle. I would have never guessed
Is “Bill and Bill” the true message here, or is that the signature block?
WilmerFAIL
Mission Accomplished!
FIRST to say that someone should look into PHJW.
Gibson has been silent through all this.
Any news?
And people laughed when MoFo and Sheppard Mullin adjusted their models back in September. I distinctly remember people on this site laughing and saying “well, those places are TTT. That will never happen at Firm X.” And yet the hole in the dam is increasing exponentially.
Is it just me or is MysTTTal actually getting good at this being-an-editor thing?! Now if he could only learn how to spell with making typos all over the place…
If Commissar Obama cannot take care of his illegal alien aunt (who by the way is living off the public dole in section 8 housing in Boston), what makes you think he will take care of you? End of lockstep? It’s about time. It kills me to see people get paid on the same scale regardless of work ethic and effort. $165K a year for 2nd year associates and they still complain? When I started out in this business, my annual salary was less than 10% of that without bonuses. I made it work, why can’t you miserable louts make it work too?
Those raises don’t even amount to COLA for 2d and 3d years.
9 – it’s just you
Is this considered “keeping the freeze”?
I would think that this is just not double-increasing the 2009 salaries. In other words, keeping them frozen, IMHO, would mean that 4th years would earn $170,000 — the same thing they did as 2nd years and 3rd years. However, this shows them going to $185,000 — the old 3rd-year salary, doesn’t it?
PE, what was the cost of a jar of Grey Poupon when you started out?
Seriously. Show me the money. It’s not hard. Abandoning lockstep is a good thing . . . and rewarding strong performers is a good thing. Abandoning the billable hour as the only way you charge clients is a good thing . . . and linking associate pay with new billing methods is also a good thing.
BUT SHOW ME THE MFin MONEY!!
I want to know exactly how I can maximize my income and I want to know how much I can earn. Don’t “pre-release” this drivel. Put together your compensation package and then show it to us in a big gangbuster rollout. Pump it up. Make it snazzy. And SHOW ME THE MONEY. I want to work for it – I just want to know exactly how to go about doing that.
Bill and Bill: The Ambiguously Gay Duo
15, by the time you get a job you’ll be maximizing a 5-figure salary, if you’re lucky.
“Show me the MFin money,” indeed.
Lockstep is gay like Bill and Bill and should have been gone a long time ago.
One hour earlier:
http://amlawdaily.typepad.com/amlawdaily/2009/12/salaries.html
3 ftw
I miss the ship…
One hour earlier:
http://amlawdaily.typepad.com/amlawdaily/2009/12/salaries.html
Addendum to post no. 10.
I would like to congratulate the consultants over at Altman Weil for striving to keep the gravy train steamrolling for the partner class, especially during this incredibly dour economy. Your contributions will continue to improve our fiscal standing while minimzing wasteful costs on associates. Keep up the good work and good luck on your presentation before the management committee. My only regret is that I am not on the committee to personally endorse your firm. I will keep my fingers crossed for you.
agree with 9. elie’s been writing some good posts lately.
How does this affect the pay of WH’s staff attorney monkeys?!
Oh the huge manatee
That’s it. I quit.
Sonnenschein has done about the same thing.
http://texaslawyer.typepad.com/texas_lawyer_blog/2009/12/sonnenschein-reworks-associate-pay-and-promotion.html
Wow, actually paying people based upon “merit”?! What a concept!!
28: V10 partner here – ‘merit based associate compensation’ is absolute BS, an excuse for firms that never attracted the best associates anyway, to start paying nearly all the associates they did hire, much less, while at the same time maintaining they have maintained the old salary scale b/c they pay top dollar to one or two people – the pathetic/hilarious thing is that firms that do this, will reduce even their best associates to sniveling, ass-kissing weasels – because sucking-up is all the new regime rewards – clients get even further screwed (but to the extent you actually choose DLA, Wilmer et al, that is probably well deserved)
Bottom line: in practice this will slash the aggregate associate compensation expense of adopting firms – which is precisely the point
Too bad market forces have to affect the legal world, eh V10 partner?
Salaries – frozen
Health insurance premiums – raised
Bonus minimum – 2000 hours
Upward evaluations – postponed indefinitely
Working at WilmerHale – priceless
31 nailed it.
Apparently V10 partners like to use nearly every punctuation mark in the book…except for periods.
28, The thing is, Sonneschien is not a comparable firm to Wilmer Hale.
35, which is less prestigious? I think they both blow.
15, we’re going to show you a 30% paycut, and so are all of our competitors. You’re going to like it and work harder to keep it, or we’ll replace you with someone else who does.
30 got it right.
31: 30 here. Believe me, I’m fine with market forces. What I find hilarious are the desperate steps that second-rate and third rates firms feel they need to take, to cover up the truth (which is: we don’t get the best work or clients so we cannot afford the best lawyers – we tried to match Cravath, S&C etc associate salaries but the expense is killing us – cutting salaries in half, while deserved, just proves to clients they have been getting ripped off for the last several years – since that won’t fly, we’ll adopt ‘merit based’ associate pay – of course, since few of our associates merit the pay they have been receiving, we’ll save a fortune, and we won’t even have to cut billing rates)
News flash, 30/40: most of YOUR associates (and partners, for that matter) aren’t worth what you bill for them, either. It’s not exactly a secret — even the clients are starting to figure it out. The jig, as they say, is up.
Billing rates are staying the same. This is about making partners happy, not clients.
All non-NYC based firms will follow Latham’s lead in freezing. Didn’t Wilmer stealth layoff like 15% of its DC Office?
Um… as a DLA associate who will be making about 15k less a year–40k less a year if you consider the 15% “holdback” (AKA money that you’ll never see in a completely bullshit and subjective evaluation system)–I would be MORE than happy to work at Orrick or Wilmer Hale.
41 nailed it.
Um… as an unemployed graduate of the august Northeastern School of Law, who has not made a fucking dime since graduation, I would be MORE than happy to work at Orrick or WilmerHale as a legal secretary.
Unemployed Northeastern motherfucking ‘07
44- Are you a DLA Level II, Step 1, or Level II, Step 2 Associate?
Nothing compares to Orrick’s new class of MANAGING Associates.
was thinking this “V10 partner here” was total BS. for what such person would have time to waste, or indeed want to, on a sewer like ATL?
but one poster nailed it: the communication is 12th grade level full of errant punctuation. funny because that misuse totally outs that writer as a partner. (or possibly a law student.) 95% of partners write like adolescents with the focus and concentration of a fly.
perhaps 30/40 speaks the truth!
2006:
Headhunter: Hi, this is George, and I’m calling to find out if you’d be interested in hopping over to X firm. You’d be looking at a 9% increase in salary, plus bonus.
Associate: No thanks, I’m good. This firm is pretty nice. I know what I’m making, and it’s market.
2009:
Headhunter: —–
2011:
Headhunter: Hi, this is George, and I’m calling to find out if you’d be interested in hopping over to X firm. You’d actually know what you’re going to earn, and that will be on top of bonus.
Associate: Wait, you mean I don’t have to guess my salary? I would be guaranteed a yearly raise, like in the old days? Sign me up.
2012:
Partner: I’d like to request a partner meeting to investigate where the talent went. My associate just asked me to “explain joinder again, but slower.”
The bottom line is that the jig is up. It’s been a fun ride for a while, we’ve had our laughs and our good times. But now reality has set in.
Most clients just aren’t willing to pay exorbidant rates for inexperienced, pimply-faced young associates to make six figures. The jig is up!
The gap between the firms in the top ten and Wilmer just widened significantly. Even once the market improves, what Harvard grad would come here?
51, All of them
The ship be sinking…
Once again, the whole merit compensation idea, while good in theory, is just another scam in practice so that firms can reduce overall associate compensation under the guise of positive reform. I see it working something like this:
Current Regime:
10 Associates @ $160k = $1.6m expenses
Proposed Regime:
2 Associates @ $170k = $340k
5 Associates @ $150k = $750k
3 Associates @ $130k = $390k
Total = $1.48m expenses (almost 10% less paid out)
In other words, a very small minority at the top will get above market rate, but the rest of the associates (even the good, but not great performers) will receive below market rate. Plus, the less money that’s locked up in discretionary bonuses, the better. Firms have already proven themselves to be tremendously sketchy about things like reviews — who’s to say that the firm doesn’t have a bad financial year and just start artificially lowering everyone’s evaluations to cut their bonuses (which now represent most of their paycheck?). They do this already with stealth layoffs.
You all are missing the most signifigant part. They are normalizing base compensation within levels. So in two years a fourth and sixth year will make the same base because they’re both senior associates. Which means 4th years who are subjectively evaluated better than sixth years will make the same base and a higher bonus. This is not for 2010 but very soon. It really is death to lockstep at Wilmer.
This move to “merit-based” pay is really extraordinary.
In addition to not-so-cleverly disguising salary cuts as a new pay system that can magically Make Associates Become Partners Sooner! (see Sonnenschein story) or Allow Associates To Earn Above Market!, they present another advantage–for management.
By purportedly tying salary to merit, the partnership of these firms have effectively redistributed firm responsiblities, absolving themselves (at least in appearance) from the obligation to bring in the business that will keep their associates busy, and progressively gaining important experience. Now, when an associate has not taken enough depositions, or drafted enough budgets, or run enough document reviews, etc., to become a Senior Associate – its his own fault. That’s just merit at work, and obviously this guy does not merit advancement. All of a sudden, the partners’ failings become the associate’s FINANCIAL burden, since he can’t hit those milestones, and salary bumps, without the work.
I think as soon as the market steadies a little–which may still be a few years off–we will see wild backlash against these systems, and firms will be forced to abandon them. Those firms who maintain transparency and lockstep pay will be the ones who move into the top echelon of prestige and recruiting success.
The other thing this does is make it incumbent upon associates to spend a significant amount of time understanding and then tracking the core competencies they are expected to display at each step, from Associate, to Managing Associate, to Senior Associate, then, at the end of each performance year, to write what amounts to an impassioned plea for compensation, guised as a self-performance review. This is a significant draw of time away from billable work.
Importantly, the billable hour will still reign supreme no matter what.
My V30 firm has not moved to merit-based pay (yet), but it did recently install a “core competency” system, with the idea that associates and partners will measure associate development against certain milestones. A couple months ago, I spent several days writing a LOOOOOONG self-evaluation (it was full of questions they wanted essay answers to – I mean, it took hours and hours of work), noting every way in which I had hit each of the competencies expected at my level, and the ways in which I was working toward others. This was a very decent self-evaluation, where I demonstrated excellent fulfillment of the competencies. However, my group has fallen apart and there’s no work here, so my billables have been horrid.
Like a week later I was laid off. I doubt anyone even read my evaluation and, if they did, they certainly didn’t care.
Wilmer will have a huge problem on its hands if it undercompensates anyone. If people know they could make more at another firm (which they will if other firms’ compensation structure continues to be transparent), then they will leave. If they leave, then WH will feel some pain.
Knowing this, WH will probably not attempt to pay people less than they could make at peer firms. So this change is only likely to affect underperformers negatively.
This recession gives the top tier firms (in my estimation, there are around 25 if you include the elite boutiques) a chance to significantly separate themselves from the other “top” firms simply by maintaining the status quo.
Wilmer Flail
I guess this does prove my math teacher was right when she taught us that ropes > wilmer
61 – you’re an idiot. Ropes will launch something just like this very soon – you heard it here first. They will call it the “NO Alternatives Program.” LOL
So two firms is a tricke, but three firms is a flood.
57: at WCPHD there is no such thing as a managing associate, nor is there a chance to write self evals.
I wouldn’t have thought that WilmerHale would have been among the firms that have been so weakened that they have to do something like this.
Make no mistake, these new compensation systems are bad for everyone except the current partners.
It’s sad to see what was once a true profession decline into just another corporate service. I doubt many people wanted to go to law school to become Assistant Manager.
WilmerFail was pretty funny.
Jokes aside though, 54/55 are correct. This is a pay cut in disguise. Only a small handful of people will get “market”
As an aside, WH is still generally slow all around, so more layoffs may be in store, probably of the stealth variety.
What happened to all the WH fanboys that inevitable post whenever there’s a WH post? Even they cannot defend this travesty of a move.
I guess this recession truly will separate the boys from the men.
we had a meeting at WH this afternoon. They indicated a severe aversion to publishing the distribution of bonuses so that people can know where they stand in the overall compensation structure. They also suggested that the evaluation system is the same as it has always been, but they’ll try to articulate it better – so it’s the same system but they are paying us less? I have no faith in the firm’s ability to fairly implement a “merit” system. They acted like associates wanted the change, but we’re all perfectly happy with lockstep, just as the partners were when they were associates.
WilmerHale NY had a meeting at 4pm in the Central Park Conference room, where the 3 heads of the evaluation committees, as well as the head of the office, presented. The Grim Reaper (director of legal talent, forgot his name) and his side kick “Sarah” joined in now and then.
Bob Trenchard and Jane Lovec were smug throughout. Paul and Noah seemed genuinely concerned about the effect on associates.
The moral of the meeting: expect to have less transparency and less pay.
But, on the bright side, upward evaluations are coming back, and I am going to roast Bob and Jane. Jerks. Having them run the committee was one of the biggest mistakes management ever made.
WilmerFlail
WilmerFail
Wilmer SUCKS
Salaries – frozen
Health insurance premiums – raised
Bonus minimum – 2000 hours
Upward evaluations – postponed
Working at WilmerHale – priceless
68: Agreed. Associates don’t trust firms for the most part to evaluate them fairly, not to institute underhanded crap like stealth layoffs or sudden and arbitrary bad performance reviews that result in firings. Therefore, why should associates trust the same firms to convert more of their salary into bonus and have even more control over how much they get paid each year?
If firms like WilmerHale would guarantee that either the total amount of associate salaries payed out wouldn’t change or that the median employee would still receive a market-rate salary, then sure, bring on merit-based compensation. But, I don’t think they’d want to do that, because part of the shift is clearly a cost-cutting strategy whereby many associates end up making less while only a few get more.
12/15/2009 marks the death of WilmerHale as a great firm. It was on a downward slope for a while, but this is the final nail in the coffin. It’s time to slide down the Vault rankings into the V100s as the more talented folk go elsewhere.
Don’t bonuses get taxed at a higher rate than normal income? Doesn’t this new compensation scheme screw over associates then?
74: No. You’re an idiot.
74 must be unemployed.
74: You might be thinking of the TARP-induced situation where Congress was threatening to 100% tax bonuses beyond a certain amount to employees of companies who took TARP money from the US government. This was a unique situation and isn’t how bonus money normally gets treated.
Or, you could be confusing something you learned in Tax I. Bonuses are “taxed more” insofar as they’re income in addition to your base salary and thus, are going to be taxed in your highest marginal tax bracket. For most lawyers, we’re talking about the 28% or 33% brackets. That having been said, simply changing base compensation to bonus (or vice versa) isn’t going to change the tax treatment of your money. Every dollar you receive, whether base salary or bonus, from ~$82k to ~$171k is going to be taxed at 28% and every dollar from ~$171k to ~$373k is going to be taxed at 33%. Of course, this doesn’t include credits, deductions, and all that other tax fun, but gives you a general idea of how things work.
This is blatant cost-cutting measure. It’s also insulting that WH thinks so little of its non-partner talent that it thinks it can spin this as somehow connected to macro changes in the industry by calling it “merit-based” even though they have no idea how they will assess merit any differently than they currently do. They’ve made it clear that the change will not result in a larger aggregate bonus pool, all else being equal. So it’s a pay cut for the masses, pure and simple, and a disingenuous one at that. A sad, sad day.
Chief Talent Officer ….aka Brad Scott…..wasn’t he the guy who ran Heller into the ground….I guess he has to justify his $350k salary somehow. Run for the exit…..we are all doomed!