Categories:London

City firms incite cynicism with shift towards meritocratic remuneration

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  • We at Badenoch & Clark have recently explored this topic (http://www.market-talk.co.uk/2009/11/06/lockstep-vs-merit-based-pay-structures/).
    If firms are looking to change their pay structure they should carefully consider how they go about it. Forcing change on employees will affect a firm’s ability to retain staff.
    Firms should look to involve their employees in the process to ensure that they are engaged in any change (http://www.badenochandclark.com/files/file/Employee-engagement-a-guide_jpg.pdf).

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  • Meritocracy sounds nice but never works, in reality it depends on whether an associate and, more importantly, his partner has sufficient influence to enforce things. A number of cases have shown that the real merits of an associate are irrelevant. The so-called flexibility only makes is even easier for partners to do whatever they like. Associates: do not trust any talk about meritocracy!!

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  • I'd have to agree with that. Many of us think we work hard, but while merit has something to do with that, it's not always the case that partners can judge these things fairly. If a partner brings in fewer deals, and associates get less challenging work, partners can just keep salaries low and their profitability stays the same. They would have no incentive to pay for their salary costs (which their hiring policies are directly responsible for) by trying harder to bring in work and run the firm more efficiently.
    Merit is already taken into account in appraisal systems at many firms, and feeds directly into bonuses. Surely that is how (hard work x competence) should be rewarded? The issue some firms seem to be ignoring is that there is often both a fixed and variable component to salaries. Merit is taken into account in the variable (bonus) element. The firms moving away from lockstep are merely trying to lower the amount they pay for the fixed component, which is likely to become a to move to a rate that is lower than market as a starting point for base salaries. There is nothing wrong with this if you think associates are paid too much; but these firms are being cynical and dishonest about things - they are in effect trying to give the impression that they are paying comparable to market rates, but in reality are reducing certainty about an associate's basic salary. I say again - I feel this may be verging on the dishonest. A better way to put it would be "We want to give you a lower base salary, and you'll have to earn the rest - though note your ability to control the quality, quantity and nature of the work you get, as well as the partnership's judgment on what you deserve for putting up with this, may be highly arbitrary and subjective".
    If you think an associate isn't worth the basic salary that the "lockstep" firms pay, then the only way to compete with those firms would be to convince everyone that the average associate on a merit curve (who, in many respects, will have no certainty on where on the curve s/he will fall) would earn as much under non-lockstep as on lockstep. Otherwise, they'll go where they get a better guaranteed salary, with a variable merit bonus. As we will no doubt see, I believe the average salary will fall at non-lockstep firms (as Pinsent's Jonathan Bond appears to be admitting), and with it, the overall quality, collegiality and team-spirit that we all hope to work with, as people compete to be seen to be better and harder-working, rather than supporting each other in what can be a difficult and challenging environment.

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  • One day the legal profession will realise that it's got to move with the times and reward people based on their performance. That requires a cultural shift in thinking from associates as well as firms. The good associates will end up earning more than they do now, while the mediocre ones will end up earning less (who'd be scared of that?!).

    But it can only be an evolutionary process. No single large firm could jump head-long into performance-based pay without risking the loss of a large number of solicitors.

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  • In my view this is just another way to get people to work harder, for the same (or possibly less) money. In a lock-step system, an associate who bills 1,700 hours a year get's paid the same (ignoring bonuses) as someone who bills 2,500 hours. Some might say that that is unjust on the person who has billed 2,500. But who is to say that the higher biller deserves more? If he chooses to work extra especially hard, and be an all-round keen-been, then good for him - I'm sure that will be rewarded in an increased liklihood of being made partner in the future. But he could also have chosen (had he wanted to) to work at a pace (e.g. 1,700 per year) which just about keeps his head above water. So yes - partners I am sure will be very happy with moving away from lock-step at associate level, as will some particularly hard-working associates. But not all lawyers want to be desk-monkeys for their entire career. Some, like me, are happy doing a good quality job, keeping clients and partners happy, but at the same time enjoying the occasional weekend or evening free to spend with family/friends etc. For this reason if I was applying for training contracts again, then the firms which offer lock-step pay would be significantly more attractive to me than those that don't.

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  • Having worked in an industry where salary was entirely "meritocratic" I formed the conclusion that all it achieves is to keep salaries low for those people who do a perfectly satisfactory, and even very good job, but who are not great at getting on with the boss, networking, selling themselves and office politics.
    Those who are more demanding and louder about their achievements will win, everyone else will lose.
    While I do object to people who are poor at thier job being advanced at the same rate as others, this is a mangement issue, not related to the lockstep. If people are not performing manage them on it, don't penalise the rest of us.

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