Killing Lockstep, Salary Cuts

McDermott Will & Emery: Another Firm Kills Lockstep, Cuts Pay

McDermott logo.JPGAs we have discussed at length, it’s one thing to move to a merit-based compensation structure. Many associates will accept it. What really seems to bother people is when the firm kills lockstep and replaces it with a system that includes a significant salary cut. E.g., DLA Piper.
Now, McDermott Will & Emery is poised to do the same thing. Multiple tipsters report:

This month, MWE announced it was moving from lockstep to a merit-based “level” system, which it calls the “Career Progression and Professional Development System.” Level 1 will pay $145,000, level 2 will pay $175,000, and Level 3 will pay $200,000.

So we have another firm that is adopting an Orrick-style, three tier system. But while Orrick held the line at a starting salary of $160K for starting associates, MWE is readjusting salaries downward.
The new compensation system isn’t ready to go right out of the gate in 2010. Instead, 2010 will be a “transitional” year, which will bring — you guessed it — salary cuts!

2010 is a transitional salary year; the 2009 class is starting at $145,000 and ’08 is being dropped down to $145,000. For everyone else, starting April 1, the salaries are $175K (2007), $185K (2006), $200K (2005), and $220K (2004).

Remember, people in the class of 2007 are making $185K at firms that didn’t freeze or cut salaries. So to be clear, McDermott will be paying people less than the market rate even when the firm gets around to raising salaries in April.
Is there anything about this merit-based system that does not involve cutting salaries? Details from the McDermott salary FAQ after the jump.

I think we’ve explored the studio space in terms of McDermott’s merit-based pay cuts. Is there any, you know, additional compensation that MWE is offering under the new plan?
The firm has not responded to our request for comment, but tipsters sent along MWE’s internal FAQ about the new plan. If associates are going to make any extra money at McDermott, it will happen at bonus time:
MWE Merit FAQ bonus.JPG
I love how McDermott wants to strongly say that bonuses will be based on MERIT … but they give themselves all kinds of wiggle room by announcing only the top-level payout (no idea how many people will actually see that kind of money). And the firm is further hedging by talking about how the bonuses will be tied to the external market and “success of the Firm” — whatever that means. Nice for the firm to make bonuses dependent on the Cravath bonus, but not put salaries on the Cravath scale.
In terms of advancement, how does one get from Level 1’s below-market salary to Levels 2 or 3? I hope you like “core competencies”:
MWE Merit FAQ core.JPG
Doesn’t that just set up for a wonderful compensation conversation come bonus time? Imagine this exchange:

MWE: Your bonus will be on the Cravath scale.
Associate: I thought my bonus could be up to 50% of my base salary.
MWE: You’re not really a leader.
Associate: Leader? I’m a first year. My secretary won’t even listen to me.
MWE: Exactly.
Associate: Umm … you know, I billed well over 2,000 hours.
MWE: Sure, for clients that we brought to the firm. Where are your clients? What have you done to develop business?
Associate: I’m sorry, if you’ll excuse me I need to take this call from a recruiter.

Welcome to the world of subjective factors and reduced pay. We’ll see if there are more winners than losers at MWE.
Earlier: DLA Piper: Taking the Merit Based Model Out for a Spin
Salary Thaw Structure: A Chart!

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