Killing Lockstep

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

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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.

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Bingham McCutchen: Lockstep Base Pay, Merit Bonuses — It’s a Hybrid Plan That Seems to be Working

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Bingham McCutchen new logo Abovethelaw Above the Law blog.jpgMaybe Toyota should take a lesson from Bingham McCutchen: don’t try to cut corners when producing a hybrid.

Back in October, Bingham announced that it would be adopting a new “merit-lockstep” hybrid approach to associate compensation. The plan came with the stamp of approval from Bingham partners and associates. And a majority of Above the Law readers also approved of Bingham’s hybrid approach.

Today, Bingham rolled out its hybrid system. The firm is providing true-up, lockstep raises for people who hit 1900 hours. The double bump extends nationally, across all of Bingham’s offices. People who hit 1500 hours will only be getting a single class bump in salary. We understand that only a small percentage of Bingham associates were low enough on hours to be affected by this stratification.

At the low end, people who billed fewer than 1500 hours will have their salaries frozen again.

On the bright side, all of the people who are frozen will have their hours reevaluated in June. If they’re on pace, they’ll get their money.

The Bingham McCutchen lockstep base pay structure is clear and straightforward (see chart after the jump). For bonuses, welcome to the black box that is merit-based compensation.

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Pillsbury: Raises, Bonuses, and Other Sundries

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Pillsbury logo.JPGIt looks like Pillsbury is back to communicating important information via firm-wide memo, instead of via cell phone conversation on the Acela. Yesterday, the firm indicated that it is thinking about moving away from lockstep associate compensation, but it is not killing lockstep just yet.

Instead, Pillsbury announced lockstep raises — they’ll be true up raises if you hit your hours in New York. In other offices, Pillsbury has decided to lowball the market. From the firm-wide memo:

Pillsbury salary bonus 2010 1.JPG

Pillsbury salary bonus 2010 2.JPG

So, it’s a true-up raise for some, a single class thaw out for those low on hours, and a salary cut for many outside of New York. But at least it’s clear.

Pillsbury’s New York bias when it comes to salaries extends to the firm’s decisions regarding bonuses. Details after the jump.

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

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A Beautiful memo.jpgLate 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.

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Associate Bonus Watch: Goodwin Matches, Thaws, Contemplates Moving Away From Lockstep

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2009 Associate bonus watch above the law small.JPGThere’s a lot of news coming out of Goodwin Procter today. Some of it is even pretty good. In a wide-ranging, firm-wide memo, Goodwin announced bonuses (basically), thawed out salaries (kind of), and indicated an intention to adopt a merit-based compensation structure (sort of).
Let’s start with the bonus news:
Goodwin merit bonus.JPG
Maybe you got a little bit more, maybe you got a little bit less. But if you hit 1,850 hours at Goodwin Procter in 2009, you were in the general vicinity of a Cravath-level bonus.
For salaries it’s a little more complicated.

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Morgan Lewis: Details Still Sketchy on its Merit Based Compensation

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Morgan Lewis.JPGBack in July, Morgan Lewis & Bockius became one of the first firms to announce that it was doing away with lockstep associate compensation. Sadly, MLB is still lagging behind other firms in explaining precisely what that change means for its associates.
Morgan Lewis’s chairman, Francis M. Milone, sent out a firm-wide email to MLB associates today. In the words of one tipster: “It’s elusive and vague as expected.”
Regarding the death of lockstep, here is the key paragraph from the memo:

[W]ith respect to compensation, as I previously described, we have moved away from lockstep in favor of a compensation model that places more emphasis on individual performance and contributions. While an attorney’s relative performance has served as the driving factor in awarding bonuses in recent years, it has played less of a role in setting base salaries. This year, in establishing base salaries and bonuses, we gave increased weight to a wide variety of factors such as the quality of an attorney’s work, the value provided to clients, industry level, including pro bono commitments, nonbillable contributions such as Firm citizenship and business development efforts, client service, and experience level. After considering all of these factors, we awarded base salary increases of up to $25,000 and incentive bonuses of up to $35,000 to our highest performing associates. As I advised in my November video presentation, we did not reduce associate base salaries.

They used an awful lot of words to explain that they were not going to let people know how much they are making relative to everyone else.
Did anybody from Morgan Lewis receive a $25K raise and a $30K bonus? Perhaps the more important question is: did more than one person at MLB receive a $25K raise and a $30K bonus?
More from the memo and our tipsters, after the jump.

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Drinker Biddle: Merit-Based Pay Means Cuts to 53% of Associates

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drinker biddle logo.jpgIt’s not surprising that Drinker Biddle is moving to a full merit-based pay scale. Back in May, we reported that Drinker Biddle decided to change the nature of the first-year associate experience. We reported that Drinker would turn its associates’ first six months at the firm into an intensive training period. During that time, first years would be paid $105,000 — but clients would be charged reduced rates for any billable work the first years did during that time.
Sources at Drinker Biddle report that the new first year program has been a “tremendous” success, and the firm plans on repeating the program with next year’s incoming class.
On Friday, Drinker Biddle fleshed out the rest of its associate pay scale. Lockstep is a thing of the past, and the firm’s new merit-based system follows the general trend of splitting associates out into different tiers. Tipsters report that Drinker Biddle is now on the following pay scale:

Philadelphia, New Jersey, Delaware and other smaller offices:
Level I: $130k
Level II: $145k
Level III: $165k
Level IV (expected p-ship w/in 24 months): $185k
New York, Chicago, D.C., and California:
Level I: $145k
Level II: $165k
Level III: $185k
Level IV (expected p-ship w/in 24 months): $205k

Most firms have adopted a three-tier system, so Drinker Biddle’s four-tier system — or five tiers, if you count how they are handling first years for their first six months — is an interesting little wrinkle.
What does this mean for associates at the firm? Details and a statement from the firm, after the jump.

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Dickstein Shapiro: New Salary Structure Leaves A Lot of Questions

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Dickstein Shaprio still basically relevant logo.JPGAdd Dickstein Shapiro to the list of firms that have decided to do away with lockstep associate compensation. As of January 22, Dickstein will adopt a new merit-based compensation system. Like many firms that have abandoned lockstep, Dickstein will be using a three-tiered system, similar to Orrick’s compensation structure.

Starting salary for new Dickstein associates will be $145,000. Or maybe it will be $160,000. Honestly, I can’t tell you with certainty what new associates will be making.

It’s not my fault. I read the original memo and everything. I talked to friends and sources and a spokesperson for the firm. I prayed on it. I just can’t seem to pin down one solid number for first-year associate salaries.

After the jump, why don’t you guys take a look at the memo? Maybe you’ll have more success divining its meaning than I did.

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

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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.

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Open Thread: In Defense of Pure Lockstep

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pyramid scheme capstone small.jpgOver the course of 2009, we covered attempts from a number of firms to replace lockstep associate compensation with a “merit based” compensation system. We have seen firm after firm (and consultant after consultant) claim that clients really care about how law firms pay their associates. And who can disagree with a term like “merit?” DLA Piper put it this way in its defense of its new, merit-based system:

At its core, this new system forces differentiation and rewards outstanding performance.

Right now, merit-based compensation is certainly winning the branding war against lockstep. There are certainly very good arguments in favor of merit compensation.
But there are also good arguments in favor of lockstep. There are reasons why lockstep is still the choice of firms considered to be the best in the country. If merit-based compensation is just a thinly veiled attempt to cut total associate compensation, that’s one thing. But let’s not forget that lockstep has some serious upside for associates, partners, and yes, clients.

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Holland & Knight Avoids Throwing Lockstep Baby Out with the Bathwater

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Holland & Knight Logo New.JPGHolland & Knight announced today that it would be moving away from lockstep associate compensation. But unlike the firms that have rushed to jump on the Orrick-style, three-tier “pure merit” model, Holland is adopting a hybrid approach. Here’s how Holland & Knight managing partner Steve Sonberg explained it to associates this morning:

The base salary of an associate will no longer depend solely on seniority and the number of hours billed by an associate during the preceding year. Instead, the firm will evaluate each associate on the basis of both objective and subjective factors.

The objective factors will continue to include the number of billable and creditable hours. The firm’s existing policy on creditable hours is not being changed. In addition to the number of billable and creditable hours, the firm will now also consider other factors that objectively measure an associate’s contribution to the firm and to our clients (e.g., collections, profitability, significant matter responsibility, and successful client development).

The subjective factors will include professional and career development (including client development skills), the quality of the legal services provided to our clients, and other contributions to our profession, our communities, and the firm. We are committed to providing an evaluation process that clearly communicates to associates what is expected of them.

Under the new model, this combination of subjective and objective factors will be used to determine what kind of raise associates receive from year to year.
Above the Law spoke with Adolfo Jimenez, the partner at Holland & Knight who oversees the firm’s associate program. H&K’s new compensation plan is very different from the ones we’ve been seeing lately, and we asked Jimenez why the firm decided to go in a different direction.

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Seyfarth Shaw Mystery Meeting Follow Up: Another Firm Moves to Kill Lockstep

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Seyfarth Shaw logo.jpgSeyfarth Shaw held its firm wide meeting on Monday, and we (finally) know what went down. The top line news is that Seyfarth will be moving to a pure competency based associate compensation system. But it won’t be fully up and running until 2011. Seyfarth’s managing partner, Steve Poor, issued this statement to the firm after the meeting:

We all recognize that the profession of law is changing in some profound and fundamental ways. Our Firm is making strong strides to align our services with changing client needs through initiatives like Seyfarth Lean, which are gaining strong recognition and support from many of our clients. We discussed another key change that we will introduce more formally in January — one that will change the way we train, develop, recognize, reward and promote our associates. We will be moving to a full competency-based talent system that will be phased in over the course of 2010. We believe this effort will benefit our clients, our Firm and each of you individually. Promotions and compensation will no longer be tied to class years, so that you will be able to excel and be recognized based on your individual skills and accomplishments. Enhanced training will help you develop broad-based skills to add greater value and meet changing client needs, like those being evaluated in the ACC Value Index. More information will be coming to you next month and throughout the year.

So, like Sonnenschein and WilmerHale, Seyfarth will be changing associate compensation, but it’s not yet prepared to tell its associates (or its recruits) how much they’ll be making under the new model.
Despite not being ready to roll out its new program, Seyfarth will still be taking a look at associate costs for 2010. Details on Seyfarth’s 2010 structure after the jump.

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