Is merit putting paid to lockstep?

Associate pay is being put in the spotlight by firms across the City. Many are gearing up to revamp the way in which they pay their associates, which could see them be remunerated on merit rather than on how many years they serve.

Historically the majority of firms based associate career progression and their remuneration entirely on how many years they had served at the firm rather than on results. This system of pay is known as associate lockstep.

But this is all about to change. Freshfields Bruckhaus Deringer recently revealed details of its new ‘career milestone’ model, which will replace lockstep with a system based on specific development criteria.

The firm’s global HR director Kevin Hogarth explained: ”Freshfields believes people should be judged on their merits. We’re happy to entrust people with as much responsibility as they’re capable of taking, but we also acknowledge that it will always take some people longer to develop than others.”

Allen & Overy, Ashurst, Lovells, Norton Rose and Pinsent Masons have all abandoned 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.

Norton Rose, which stopped using Post-Qualification Experience (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 commented: “For Norton Rose the motivation was to move away from a system which is archaic.”

He said 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 added.

Some associates and students are also welcoming the move. A one year-PQE associate at a magic circle firm said: “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”.

But recruiters question whether a merit-based system will offer more equitable salaries and bonuses.

One recruitment consultant said: “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.”

Many have also questioned whether the moves will cause women to lose out to their male counterparts in terms of pay.

Law student Soo said: “Who’s more likely to be paid more under this new scheme? The young, single bachelor working all the hours God sends or the young woman who’s working just as hard but has a child to get home to after work? Firms will have to be careful not to resign women to a lifetime of much lower pay.”

Pinsents, which moved away from lockstep three years ago, admitted that its merit-based structure has saved the firm money.

“Long-term, this is more cost-effective,” said 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 warned 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?” said 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.

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,” said 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.”