Merit Based Compensation

Paul Hastings is throwing cash around. At least, that’s the impression it’s trying to give off. Unlike the firms that announced regular bonuses back in December and spring bonuses in the new year, Paul Hastings held off on a December bonus announcement and is only now coming out with its full bonus package.

And Paul Hastings isn’t a straight lockstep firm. Paul Hastings lists some bonus amounts available to the top-performing associates, but because of various merit factors, most associates will not be receiving those top figures, and some are not eligible for a bonus at all.

So while there is money flying all around the Paul Hastings bonus memo, it’s hard to tell how much of it will stick to real Paul Hastings associates…

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Here we go. Spring bonuses are making now making their way into firms that are not strict lockstep firms. They’re making their way into firms that are not predominately based in New York City. They’re making their way everywhere.

Yay. If you will allow me to channel my inner Oprah: you get a spring bonus, you get a spring bonus, you get a spring bonus!

WilmerHale is the latest firm to get in on spring bonus mania. The firm’s approach to associate compensation is merit-based. So if you had a crappy 2010 at WilmerHale, well, your life just got comparatively worse, vis-à-vis your more meritorious peers…

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In our coverage last month of top law firm partners to work for, Wilson Sonsini did well. See here and here.

(Speaking of Wilson Sonsini partners, the firm recently announced nine new ones — including Rick Frenkel, of “Troll Tracker” fame. Congratulations!)

Not only does WSGR have some great partners to work for, but they will also pay you if you work there. Getting paid is… nice.

How much will Wilson Sonsini associates receive in 2010 bonuses and 2011 base salaries?

Let’s look at the memo that went out yesterday….

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Last month, the Boston Globe reported on an arbitrator’s finding that Goodwin Procter overcharged a real estate client by more than $540,000. (We mentioned the Globe story here and here.)

Alas, some claim that Goodwin isn’t letting that extra gravy trickle down to its associates….

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Ed. note: This is the latest installment of Inside Straight, Above the Law’s new column for in-house counsel, written by Mark Herrmann.

I like what Steven Harper’s doing these days. After 30 years at Kirkland & Ellis, he retired from the fray, and he now comments on big law firms from an outsider’s perspective, at The Belly of the Beast. Although Harper’s critiques are often cutting, I think they reflect his underlying concern, not animosity, about law firm life.

But, to my eye, Harper recently missed a trick. In a recent column at the AmLaw Daily, Harper speculated that big law firms may prefer lockstep compensation to merit-based systems because merit-based reviews require partners to invest nonbillable time thinking carefully about associate performance. There’s no incentive for partners to invest that nonbillable time, says Harper, so firms settle for lockstep — and firms thus delay giving meaningful (and ultimately helpful) guidance to associates.

I think it’s worse than that. I think there’s actually an invidious incentive for partners at large firms to mislead associates about their performance. Why?

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Morgan Lewis & Bockius associates: your long nightmare might be at an end. All the way back in July of 2009, MLB became one of the first firms to announce its intention to do away with lockstep compensation. Back then, the firm was still in the teeth of the recession, it had canceled its 2010 summer program, and at MLB (and firms around the country) killing lockstep and moving towards a low base-salary, high merit-based bonus structure for associates seemed like an appealing way to reduce employee costs.

But months and months passed without MLB actually implementing anything. We kept hearing vague “details” about the new merit-based system, but nothing actually became formalized, even as other firms went full steam ahead into the merit-based unknown.

Well, the uncertainty is over. At a video-conference yesterday, Morgan Lewis chairman Francis M. Milone announced that the firm is mothballing plans to move towards a fully merit-based system for associate compensation and development. At least not in the three-tier, random factors for advancement, format that some firms rushed to implement in 2009.

Oh, and bonuses are supposed to “substantially larger” than last year for MLB associates…

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While expressing a commitment to maintain its new, incredibly transparent, merit-based salary structure, Orrick is moving its base salary back to reaffirming its commitment to $160,000 for first-year associates working in major markets. That’s right, the time for $145K in big offices is almost at an end.

UPDATE: Initially spokespeople from Orrick termed the move as one back to $160K, but our previous reporting didn’t indicate that Orrick ever came off the $160K starting salary — even after its switch to merit-based compensation. Sources now confirm that Orrick was at $160K all along; today’s salary announcement will primarily affect veteran associates.

From the memo associates received from Orrick’s CEO, Ralph Baxter:

I am pleased to announce an increase to our 2011 base salary schedule for partner track associates in our US offices. This salary schedule will be effective January 1, 2011. We will continue to monitor the legal market and will make any further adjustments necessary to remain competitive.

This change in our salary scale reinforces our continued commitment to be competitive with the world’s leading law firms and to attract and retain the best legal talent. We will continue to ensure that your total compensation reflects the increasing value you contribute to our clients and the firm through the new talent model’s performance-based career progression and bonuses that are driven by merit rather than solely by billable hours.

And there’s more good news: Orrick bumped up each of its associate “tier” levels. This means that, assuming Orrick associates get promoted “on time” relative to their peers at lockstep firms, Orrick’s base salary will once again match the market…

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It must be a slow news week over in mainstream media land. Earlier this week, the New York Times did a survey piece about American salary cuts that tangentially touched on lawyer salaries — old news for people on top of the legal market, but probably new to a more general audience.

Today, the Boston Globe is getting in on the lawyer pay action. Its report focuses on the move towards merit-based associate compensation that’s been happening for at least a year:

Boston’s top law firms are dramatically changing how they pay young lawyers, adapting to a changing market by adopting Wall Street-style compensation systems that rely on performance bonuses for large shares of annual earnings.

Major law firms have traditionally hired junior lawyers at six-figure salaries and awarded annual increases based on the number of years at the firm, a system known as “lockstep.’’ But several of Boston’s largest and best-known firms are telling associates that they no longer can count on automatic raises. Instead, they will receive salaries and bonuses based on how partners assess their performance.

Wall Street-style compensation, is it? Well then, I guess we should expect bonuses in Boston this year to be all over the map, instead of in strict lockstep with what peer firms end up paying…

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We’ve done a number of reports over the last few weeks on salary cuts of 2009 that are being reversed in 2010. Sure, some firms are still trying to be cute when it comes to associate pay. But many Biglaw firms are back on the $160K scale for associate salaries, at least in major markets.

Apparently Foley & Lardner hasn’t received the memo. While New York associates will start at $160K, associates in other big-market Foley offices (like D.C., California, and Chicago) remain stuck at $145K.

We’re not exactly sure why….

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Back in November, Baker Botts told us that they would be moving away from a lockstep associate compensation system and instituting a new merit-based system. Yesterday the firm released the base salary levels for its new four-tiered system. Here’s the statement from the firm regarding the basic changes:

The next phase of a talent management program — moving from a lockstep to levels format to track associate progress at the firm — was announced today by Baker Botts Managing Partner Walt Smith. This new format is the latest enhancement of a multi-year plan to better manage associate development at all experience levels.

“Implementing this program will allow us to remain competitive in our efforts to recruit and retain the best and brightest lawyers,” Smith said. “Importantly, it will help us foster an environment that emphasizes the attributes we believe are essential to our firm’s culture.”…

The compensation aspects of the program will be effective August 1, 2010. Base annual salary for entry-level lawyers will remain at $160,000.

The firm wouldn’t officially release the salary levels for more senior associates, but tipsters gave us the inside scoop…

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