Associate Salaries, Killing Lockstep

Foley & Lardner: New Salary Structure Leaves More Questions Than Answers

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Late last week, Foley & Lardner released its new salary structure. Honestly, I can’t tell you what they’re doing. I’m a professional firm double-talk decoder, but trying to pull out key phrases from this memo made me feel like John Nash.
The memo starts off similarly to other announcements from firms that want to move to merit-based compensation. The firm has conducted a major review, the recession sucks, you know the drill.
Foley is breaking associates out into three tiers, similar to Orrick and other firms that have moved away from lockstep. But when the memo turns to “specifics” — like how much money people will actually make — the Foley & Lardner memo turns to mush:

Within Tier I, the compensation structure will be similar to what has been in place for the last several years. Specifically, there will be a set starting salary in each office for the stub year and the first full fiscal year following law school graduation. During the second and third full years, associates will have a base salary and a 1950 billable hour deferred salary payable at year-end if they achieve a minimum of 1950 billable hours and 150 investment time hours during the year.

The starting Tier I salary is the one thing that’s clear:

Salary schedules will be distributed in each office. The starting salary in New York this year will be $160,000. In our other major city markets (Boston, Chicago, Washington and all of our California offices), where the recently announced starting salaries of the major law firms have varied to a greater extent, the starting salary will be $145,000. The starting salaries in our other offices will generally maintain the differentials from the major city amounts which have existed in recent years.

Salaries for everybody else are not at all clear. See if you can understand what Foley is doing with Tier II and “Senior Counsel” associates.


Beyond the starting salary, the Tier I scale isn’t clear. But it is a rock in a world of gasses compared to what is going on in the other tiers:

In Tier II, there will no longer be a lockstep salary for each class nor will there be the 1850/1950 deferred salary concept. Rather, each associate will be individually evaluated and paid while in Tier II at one of six salary levels which will be in place for each office. While there will be a presumption that associates promoted from Tier I to Tier II will start at salary level 1, there will certainly be instances where associates entering Tier II will start at one of the higher salary levels. Similarly, while most associates satisfactorily progressing within Tier II will move up a single salary level each year, there will be circumstances under which associates will jump two levels. Nor will there be any requirement that an associate progress through all six salary levels to be considered for promotion to senior counsel. Rather, it is anticipated that the length of time that associates remain in Tier II will be similar to recent years, with no change to the criteria for promotion from Tier II to senior counsel.
Senior counsel will continue to be paid as in the past, without any lockstep but with a “standard” first year senior counsel salary and a “standard” second year senior counsel salary in each office. These amounts serve only as guidelines for setting salaries of senior counsel. As in the past, individual salaries of senior counsel will vary based on experience, performance and contributions to the firm.

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Did you catch that? If so, maybe you can share your insight with associates that actually work at Foley, because they are as confused as I am. A tipster reports:

We also received a memo to all associates with our actual ranges — tier 1, 2, and 3, but have not received our assigned pay scale for this year even though the year started Feb. 1. So, I worked for an unknown amount today — not too happy!

And when those associates do receive their pay scale, it’s not exactly going to provide certainty. From the Foley memo:

As with any new program, we expect that some corrective actions will need to be taken during the course of the year, and we welcome your input as to the manner in which this program can be most effectively implemented. As previously noted, the specific salary levels will be effective for this year only and will be adjusted as appropriate at year-end for the next fiscal year based upon firm performance and relevant market factors.

Is that supposed to be a politically correct way of saying: “and if this entirely new compensation structure turns out to be an overreaction to a cyclical recession, we will totally abandon it and make up something else.”
Read the full Foley memo below. Now if you’ll excuse me, I need to go grab coffee with my best friend, Paul Bettany.
FOLEY & LARDNER — MEMO — ASSOCIATE COMPENSATION
Last summer, when the firm announced the reduction in associate and senior counsel salaries, we indicated that a committee would be appointed to review the firm’s associate/senior counsel compensation structure and make recommendations as to the appropriate compensation program for the 2010/2011 fiscal year. That committee, which was comprised of Management Committee members, representatives from the Associates Committee, and others, assisted by outside consultants who specialize in attorney compensation systems and are conversant with what most of the other AM Law 100 firms are doing, presented its initial recommendations in December. Those recommendations, which have been shared with the full Management Committee, the Department Chairs, the Office Managing Partners, and the Associates Committee, were recently finalized by the original committee with the benefit of the latest information from other firms. Based on those recommendations, the associate/senior counsel compensation program described below is being adopted by the firm for the upcoming fiscal year.
A. OBJECTIVES
In developing this program, the following objectives, among others, were taken into account.
1. The compensation program must be competitive with major law firms nationally, must be fair to our associates and senior counsel, and must enable the firm to continue to attract and retain the best available talent.
2. The program must recognize the demands of our clients that we continue to deliver high quality, cost effective, value-added services. Excessive focus on billable hours as a proxy for high quality performance runs counter to this need. Both the firm and its clients benefit by developing, promoting and compensating associates and senior counsel on a basis more meaningful than simply the recording of high billable hours.
3. In this time of economic pressure on large law firms generally, the compensation program must be fiscally responsible, taking into account the financial performance of the firm and the reduction in associate billing rates being put into place for the new fiscal year.
4. The compensation program should contain sufficient flexibility to recognize differences in performance and appropriately reward outstanding contributors. It should allow for more personalized career paths for associates, including the possibility of additional time for development without obligatory compensation creep (and accompanying billing rate increases).
5. While total individualization might achieve the other objectives, the program must be sufficiently feasible so that it can be implemented in a fair and consistent manner and with a realistic appreciation as to the limitations on evaluations of associates and senior counsel firm wide.
B. THE SPECIFICS OF THE PROGRAM
The associate/senior counsel program for 2010/2011 will build on the existing three-tier associate structure. Tier I will consist of associates in the stub year and the first three full years following law school graduation. Associates generally in the next three or more full years of practice, beyond Tier I and prior to attainment of senior counsel status, will continue to constitute Tier II associates. And senior counsel, specifically those attorneys likely to be considered for partnership in the next few years, will be in the third tier. Promotion between Tier I and Tier II, as is already the case with promotion from Tier II to senior counsel, will be a deliberate decision based upon quality of work, client experience and emerging skills. Each practice group will develop the professional accomplishments necessary for an associate to move from Tier I to Tier II.
Within Tier I, the compensation structure will be similar to what has been in place for the last several years. Specifically, there will be a set starting salary in each office for the stub year and the first full fiscal year following law school graduation. During the second and third full years, associates will have a base salary and a 1950 billable hour deferred salary payable at year-end if they achieve a minimum of 1950 billable hours and 150 investment time hours during the year.
In Tier II, there will no longer be a lockstep salary for each class nor will there be the 1850/1950 deferred salary concept. Rather, each associate will be individually evaluated and paid while in Tier II at one of six salary levels which will be in place for each office. While there will be a presumption that associates promoted from Tier I to Tier II will start at salary level 1, there will certainly be instances where associates entering Tier II will start at one of the higher salary levels. Similarly, while most associates satisfactorily progressing within Tier II will move up a single salary level each year, there will be circumstances under which associates will jump two levels. Nor will there be any requirement that an associate progress through all six salary levels to be considered for promotion to senior counsel. Rather, it is anticipated that the length of time that associates remain in Tier II will be similar to recent years, with no change to the criteria for promotion from Tier II to senior counsel.
Senior counsel will continue to be paid as in the past, without any lockstep but with a “standard” first year senior counsel salary and a “standard” second year senior counsel salary in each office. These amounts serve only as guidelines for setting salaries of senior counsel. As in the past, individual salaries of senior counsel will vary based on experience, performance and contributions to the firm.
There will no longer be a national IP associate salary schedule. In the Detroit, Madison and Milwaukee offices, current salaries will be taken into account in setting the salaries of IP associates in Tier II and senior counsel. As to Tier I, to the extent that salaries of IP associates in those offices are higher than the newly applicable salaries, salaries will be frozen at their current levels until the appropriate salary level exceeds the salary the associate is being paid.
With respect to bonuses, the firm will retain the discretionary bonus program with a maximum bonus each year of 30% of salary. The automatic sweat bonuses which were previously paid based solely on billable hours will no longer be in place, consistent with the goal to lessen the focus on billable hours. Rather, the entire bonus will be based on performance and contributions to the firm, including consideration of billable hours. As in the past, full-time associates will be expected to work a minimum of 1850 billable hours and 150 investment time hours to be eligible for a discretionary bonus, but in exceptional circumstances associates and senior counsel with less than 1850 billable hours for the year may be considered for a bonus.
We recognize that by decreasing reliance on billable hours and removing lockstep for the Tier II associates, the firm will have to put a greater emphasis on the evaluation process for associates and senior counsel, both with regard to setting salaries and determining bonuses. Department Chairs are already looking at this issue and during the course of the year will be taking steps to assure a fair and complete evaluation of all associates and senior counsel. We anticipate that evaluations for both salary and bonus determination purposes will likely address at least the following:
* Professional competence and quality of work
* Efficiency and value of work;
* Quantity of work;
* Expertise development;
* Teamwork / Collegiality;
* Enterprise creation / Supervision of client relationships;
* Emerging responsibility, supervision and delegation (including training and mentoring of younger associates);
* Quality of pro bono time; and
* Quality of non-billable investment time.
C. SALARY SCHEDULES
Salary schedules will be distributed in each office. The starting salary in New York this year will be $160,000. In our other major city markets (Boston, Chicago, Washington and all of our California offices), where the recently announced starting salaries of the major law firms have varied to a greater extent, the starting salary will be $145,000. The starting salaries in our other offices will generally maintain the differentials from the major city amounts which have existed in recent years.
The remaining Tier I salaries, as well as the Tier II and “standard” senior counsel salaries, will follow from the office’s starting salary. As a result, for most associates and senior counsel, salaries will be similar to or represent a slight increase to their August 1 salaries.
These salary levels, which will be in effect for this year and will be subject to review at year-end, will allow for a 10% reduction in the billing rates of starting associates, as well as reduction in the billing rates of associates at all levels of experience. These billing rate adjustments are in response to what we are hearing from our clients generally and are intended to accommodate their needs.
Individual salaries for the new fiscal year are being determined for all associates and senior counsel, based largely on current salaries and the salary schedules being implemented for each office. Each associate and senior counsel will be advised of his/her base salary for the new fiscal year within the next week or so. These salaries will be effective February 1. By next year, we anticipate a more comprehensive evaluation process to be in place, which will allow for more complete implementation of the new program.
We believe this associate/senior counsel program will largely achieve the objectives that are noted earlier in this memo. As with any new program, we expect that some corrective actions will need to be taken during the course of the year, and we welcome your input as to the manner in which this program can be most effectively implemented. As previously noted, the specific salary levels will be effective for this year only and will be adjusted as appropriate at year-end for the next fiscal year based upon firm performance and relevant market factors.
We are scheduling a firm-wide videoconference for all associates and senior counsel for Monday afternoon, February 22, beginning at 3:00P CT (4:00P ET, 1:00P PT), during which we will respond to questions you may have concerning this new compensation program. In the meantime, please feel free to direct questions concerning the program or how it might affect you to your Department Chair or Office Managing Partner.

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