Law firms that automatically increase associate pay every year might as well issue a news release that says: “We don’t have the first clue how much our associates are actually worth.”
Seniority-based salary is a relic of the factory era. It’s used today mostly to compensate people such as auto workers (undifferentiated rote work), schoolteachers (work whose value defies easy measurement) and law firm associates (both).
Law firms can do better and, at long last, many are. Several U.S. and U.K. law firms, including giants like Clifford Chance LLP, DLA Piper and Hogan Lovells, have switched to what they call a merit-based compensation system. These systems decouple associate salaries from year of call and tie them instead to a series of factors based on the associate’s skills and contributions.
Merit assessment methods can be as simple as annual partner reviews, or be far more sophisticated. Seyfarth Shaw LLP, for example, has nine salary levels based on how well associates master 11 different skills delivered by the firm’s training program. A growing number of Canadian firms, including WeirFoulds LLP and Burnet Duckworth & Palmer LLP, are also using merit-based compensation.
This is a welcome and overdue development. Everyone knows that associates differ widely in terms of their efficiency, effectiveness, work ethic, willingness to collaborate, affinity for a subject area and other factors. Paying associates on their merits, as part of an effort to identify and quantify their value, just makes sense. Wouldn’t you like to be paid according to how good you are? Especially if you’re better than that associate two years ahead of you?
But firms can benefit too. Merit-based systems improve a firm’s chances of keeping its top performers, who can feel shackled by lockstep systems that restrict their earnings. And because firms can show that associate salaries are tied to specific criteria that create real value, such systems also help make clients more willing to pay full price for associates’ work.
But firms need to proceed carefully. First, it’s easy to fall back into old habits and decide that “merit” really means “billable-hour totals.” That’s not a step forward, it’s a leap backward that will burn out associates and infuriate clients. “Merit” has to mean more than “billings generated” or the whole exercise is pointless.
Second, a merit-based compensation system needs to be transparent. Every associate needs to know exactly which factors drive salary and how they are measured. Don’t tell associates they’ll be paid for good business development. Provide specific criteria: new client relationships begun, existing relationships furthered, articles published, CLEs presented, blog posts written and so forth.
Third, compensating by merit is a potential minefield for diversity efforts. Lockstep compensation has few virtues, but impartiality is one of them. Everyone, women and visible minorities included, makes the same and everyone knows it. Firms should choose criteria that encourage diversity.
Finally, merit-based compensation must be tied to effective training. It makes no sense to compensate associates on skills and traits they’ve been given no opportunity to develop. This requires not only that the firm invest in and deliver a top-notch training system, but also that partners sacrifice real, otherwise billable time to ensure associates are supervised and mentored in a meaningful way. Associate merit is every partner’s responsibility, whether partners like it or not.
Law firms appear ready to abandon lockstep in favour of a more defensible, valuedriven pay system. Good. But they have to do it right, or they’ll simply have replaced one untenable system for another.
Jordan Furlong is a partner with Edge International Consulting, advising law firms and legal organizations across North America. Read his blog at Law21.ca.
Illustration by Jason Schneider