Step by Step

  • February 18, 2010
  • Stephanie MacDonald

A biting recession and a slow recovery are leading some large American law firms to reduce their costs and rationalize their internal processes. One of the most interesting examples is a trend by some firms to eliminate lockstep compensation for associates, replacing it with a merit-based salary system. Law firms are among the last professional organizations to compensate employees by seniority.

For example, after cutting 300 jobs earlier this year, San Francisco-based Orrick, Herrington & Sutcliffe, an 1,100-lawyer firm with offices worldwide, implemented a new compensation structure that features three levels of associates. Advancement from one level to the next, with corresponding compensation increases, depends on defined performance criteria. A lower-paid “custom track” is available for lawyers not wishing to become partner.

The list of U.S. firms abandoning lockstep is growing, and includes well-known names such as Shearman & Sterling, Howrey LLP, Arnold & Porter, Morgan Lewis, and Fulbright & Jaworski. But so far, no Canadian firms have announced plans to follow suit. Many midsize to large firms say they already have some form of performance-based variation of lockstep, often expressed through bonus options or pay ranges for each year.

But that’s as far as Canadian firms seem inclined to go down this path. “It’s obviously a hot-button topic in the States right now,” says Carol Chestnut, director of associate programs for Stikeman Elliott LLP. “But we have no plans to consider it, and fortunately we aren’t in a position to have to consider it.”

“You have more opportunity in a weak labour market to make these types of changes,” says Warren Smith, regional director of The Counsel Network in Vancouver. “But I would wager most Canadian firms will largely stick to the current model. The structure is not, ultimately, broken.”

But it’s not that Canadian firms haven’t noticed the trends down south. “The fact is,” says a lawyer at a national firm, “90 per cent of new associates are going to make less under a ‘merit-based’ system.”

“Maybe I’m cynical,” adds one Bay Street partner, “but a few years ago, there was a mad rush for juniors, and offers went up accordingly. Now things are slower and they’ve got to cut costs. Stick it to the juniors, because you can get away with it now. But when there’s competition for lawyers again, they will do what is necessary to lure talent.”

In the meantime, the issue does shine light on the question of how firms evaluate their junior lawyers. “Unfortunately, the average law firm is poorly structured to deliver real feedback and accurate and fair evaluation to new associates,” says Arizona-based legal career consultant Elizabeth Zelinka.

Consultant Alan R. Olson of Altman Weil agrees. “Evaluation should be integral to any firm. A failure to provide effective training, evaluation and development opportunities, almost without question, reduces a firm’s effectiveness and profitability.”