Citi Private Bank’s Dan DiPietro, one of the world’s best-known specialists on law firm finances, is urging New York’s top firms to take a lead in reshaping associate compensation.

DiPietro, head of Citi ­Private Bank’s law firm group, says there is “a real opportunity” for top-tier firms to be innovative if they are prepared to ditch ­associate lockstep.

“They could end up with a seriously competitive recruiting advantage,” ­DiPietro adds.

In recent months several US firms have outlined plans to do away with
the traditional lockstep ­remuneration structure. Orrick Herrington & ­Sutcliffe, Philadelphia-based WolfBlock and ­Cleveland’s Thompson Hine all recently announced major changes to the way they pay their associates.

Orrick is preparing to introduce a new structure in July that will include merit-based pay increases. WolfBlock and Thompson Hine recently cut their ­associate salaries, but have increased the size of their bonus pools to allow lawyers to earn back in merit-based payments what they have lost in fixed remuneration.

No top-tier New York firm, however, has announced that it is moving away from ­associate lockstep.

“The current market provides an opportunity to look hard at the associate compensation paradigm,” DiPietro argues. “My definition of reconfiguring it includes a much heavier emphasis on variable as opposed to fixed remuneration. I believe there should be a move to a more performance-based remuneration system.”

DiPietro is a key figure in the debate on whether the current challenges facing law firms represent a ­paradigm shift in working practices.
In DiPietro’s ­opinion, the ­economic climate of the past 18 months does represent such a shift.

That change will lead to major structural rethinks at law firms as clients demand a different approach from their legal advisers. But ­DiPietro believes it will also require some nimble ­thinking on the part of the clients themselves.

“I believe the magnitude of what we’re encountering will lead clients to demand greater efficiencies in the way law firms provide their services,” he says. “But clients will also have to be more open to sharing the risk. Instead of saying, ‘I want a cap to protect me on the downside’, they should agree that this work will cost X, and if the law firm figures out a way to do it more efficiently, then more power to them.”

Ultimately, figuring that out is certain to lead to ­significant changes, ­including the way firms reward their junior lawyers.