Associate Bonus Watch 2009, Killing Lockstep

Associate Bonus Watch: Orrick, A Case Study in Merit-Based Bonus Payments

2009 Associate bonus watch above the law.JPGA number of firms have adopted a merit-based pay structure, and other firms claim they want to. But few firms have thought through how to make a merit-based structure work as much as Orrick, Herrington & Sutcliffe has. And nobody is addressing the new scheme with quite as much transparency.
Orrick sent around its merit-based bonus memo today. If you have gotten used to firms using merit compensation to hide what they are paying their people, prepare to be surprised:

82% of all US associates received a bonus. As previously communicated, we did not apply an hours threshold in determining bonus eligibility.
The following tables provide information about our US 2009 bonus distribution by new talent model role for all US associates.

That’s right, Orrick actually provided a chart showing the general bonus payouts to its associates. This is not entirely new — Latham comes to mind — but it’s certainly nice. Here are the overall numbers:
Orrick 2010 bonus chart 1.jpg
Do you want more transparency? Orrick has you covered.
The firm even provided a bonus comparison chart, so its employees know where they stand.

Averages and medians can be misleading. So, Orrick broke down how many people received various levels of bonus payments (click to enlarge):
Orrick 2010 bonus chart 2.jpg
And, just for good measure, Orrick compared itself to everybody else (again, click to enlarge):
Orrick 2010 bonus chart 3.jpg
It seems to me that salary transparency is really all that an associate or potential associate can ask for from law firms under a merit-based system. Orrick is stating precisely the percentage of its associates who will receive no bonus, and telling those who did get a bonus how they stack up with others at the firm and against the market in general.
Still, at least one Orrick associate is unimpressed:

It was nice of the firm to include comparison tables but they are not helpful because they combine three classes into one group and then just compare them to the range of salaries and bonuses over three classes at other firms. I understand that Orrick is trying to make the “three rank” thing work for associates, but if I lateral to Mayer or Latham because they pay far more than we do I will be moving over as a “third year” or “fourth year” and not an “associate” or “managing associate.” …
[I]f decent performers just match Cravath by class I guess that’s fair but why go through all of this “talent model” junk to get there?

If you don’t like merit-based compensation, there’s nothing in this bonus memo that is going to change your mind.
But if you compare Orrick to other firms that are going down this killing lockstep path, you have to give the firm credit for giving its associates (and recruits) every opportunity to make an informed decision.
So, on the basis of these numbers, what do you think about Orrick’s system?
Earlier: Orrick’s New Compensation Structure

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