City firms incite cynicism with shift towards meritocratic remuneration
City law firms are being accused of taking advantage of the economic downturn by slashing associate pay as they move away from the lockstep model.
Jonathan Bond
Several firms have already abandoned the system, with more understood to be undergoing a review of their associate development paths.
Last week (12 November) Freshfields Bruckhaus Deringer unveiled details of its associate ‘milestone’ model. While the firm stresses that the change was about development rather than remuneration, others have said the trend towards merit-based systems is being used to cut costs.
Allen & Overy, Ashurst, Lovells, Norton Rose and Pinsent Masons have all abandoned the associate lockstep in recent years, while CMS Cameron McKenna, Eversheds and Simmons & Simmons are among those firms understood to be looking at using similar merit-based pay scales for their associates.
But recruiters question whether a merit-based system will offer more equitable salaries and bonuses.
One recruitment consultant told The Lawyer: “In my view, what various firms have done to move to a merit-based system hasn’t really made a hell of a lot of difference. It just gives firms scope to start treating associates differently.
“The problem in the legal profession is that you’d suffer dramatic consequences if you introduced a proper merit-based system. People would just leave.
“I suspect firms are trying to move in this direction gradually to avoid a backlash.”
Pinsents, which moved away from lockstep three years ago, admits that its merit-based structure has saved the firm money.
“Long term, this is more cost-effective,” says Pinsents head of HR Jonathan Bond. “I think adopting a merit-based system doesn’t result in direct cost savings immediately, but what it does do is make sure you’re spending your money wisely.
“We’ve been able to more appropriately remunerate associates based on their performance.”
Freshfields has said that there will be “no immediate changes” to salaries, but following last year’s pay freeze, which saw many firms effectively reverse lockstep bands, there are fears that firms that abandon lockstep are cutting costs by stealth.
A managing partner at a City law firm warns that the desire to save “a few bob here and there” was not worth the risk of potentially losing associates.
“How much money would you save by having different merit pay?” says the City chief. “For a massive firm it could make sense, but for others it would endanger the stability of the firm.”
Those firms that have already moved away from lockstep say the change has allowed greater flexibility and encourages more directed career development among its associates.
Norton Rose, which stopped using PQE to decide associate pay early last year, claims that the lockstep system was no longer effective as a means of assessing development.
Head of HR Lak Purewal comments: “For Norton Rose the motivation was to move away from a system which is archaic.”
He adds that the lockstep was “not effective” because it failed to recognise achievements.
“We may have an individual who doesn’t get a great deal of experience during the period of the year, but they still move up and are still deemed to be two or five year-PQE,” Purewal adds.
Some associates and students are also welcoming the move. A one year-PQE associate at a magic circle firm says: “I’m a big fan of Freshfields’ decision to abolish the associate lockstep - they’ve really stolen the march on this. I think you should be judged on how well you perform rather than how long you’ve served. I could work thousands of hours and bring in loads of clients but will have to wait to be a senior associate.”
Kyle Soo, a law student at Manchester University, believes that “students will be attracted to firms which operate the merit-based system because they know they’ll be rewarded for how hard they work”.
However, the timing of the current spate of reviews suggests to some that giving up lockstep is not driven entirely by a desire for increasing meritocracy.
“It’s a market in which we can do it,” says a partner at one firm undertaking a review of its system. “If they did this three years ago lawyers would have moved across [to another firm], but it’s a different market now.”
Additional reporting by Corinne McPartland, Julia Berris and Katy Dowell
Reed Smith puts paid to lockstep
By Matt Byrne
Two years ago US firm Reed Smith hired Nicky Dingemans, formerly of strategy consulting firm Booz Allen Hamilton, as what it calls its “global chief people officer”.
That job title alone was enough to set sardonic British tongues wagging on The Lawyer’s website last month when the firm unveiled its new talent development programme: “Oh for goodness’ sake! RS partners must have more money than sense to throw at this corporate nonsense. ‘Chief People Officer’? Oh purlease…”
So, not to everyone’s taste then. But the reality is that Reed Smith’s move to break associate lockstep, which is what its new talent model amounts to, is likely to set a template that will be followed by many other firms, whatever they might decide to call it.
The programme is branded ‘CareeRS’, another choice tag sure to make UK lawyers wince. What it means in practice is that the firm’s associates will have their career progression and pay linked to their success in navigating four core areas - legal skills, citizenship, business skills, and clients - and nine core competencies.
As the firm puts it: “These competencies address the mastery of key legal skills, support of the firm’s culture, demonstration of leadership and business skills and, most fundamentally, understanding and effectively managing client needs.”
Last month (28 October) Dingemans confirmed to The Lawyer that, while the new structure was likely to mean some associates would not automatically receive pay rises each year, it would be possible for high performers to receive both more money and, in the longer term, make partner more quickly than under the old, arguably outdated, lockstep system.
Readers' comments (6)
Colin Loth, Badenoch & Clark | 16-Nov-2009 10:06 am
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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Anonymous | 16-Nov-2009 5:47 pm
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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Anonymous | 17-Nov-2009 3:29 am
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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Justin Ellis, iLaw | 17-Nov-2009 4:45 pm
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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Not a Desk Monkey | 18-Nov-2009 1:10 pm
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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A Nonny Mouse | 19-Nov-2009 1:38 pm
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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