Pay them what they’re worth

  • March 06, 2014
  • Pablo Fuchs

Sometimes, a series of factors all come together at just the right time, creating the perfect conditions for a paradigm shift. Law firms on both sides of the Canada-U.S. border are experiencing such a moment, as economic imperatives and a massive attitude shift associated with the new generation of lawyers have compelled them to review how they compensate their associates, and even eschew the traditional lockstep model in favour of a merit-based pay system.

Surviving the worst economic recession in decades has been a strain not only on law firms, but on their clients as well. So it’s no surprise many are concerned with controlling costs and revisiting the old ways of doing business, says Jon Veale, managing director of Vision Legal Recruitment in Toronto: “Merit-based pay can promote an increase [in compensation] only for top performers. In the past, there were numerous salary wars, leading to increased billing rates, and you can’t do that in this climate. Clients are understandably expressing concern or outrage over associate billing rates versus the value they gain from the associate’s work.”

Karen MacKay, president of Toronto-based law firm consultancy Phoenix Legal Inc., suggests firms are also finding a way to manage talent that benefits them and their associates better than lockstep. “The track to partnership [under the lockstep model] is becoming longer and longer, and there’s a concern the strong won’t wait around,” she says, noting that under a merit-based system, the cream could rise to the top much sooner.

The gender shift in the legal profession is also an issue that merits attention, says MacKay: “The class of ’95 worked hard, waited to make partner, then got married and had kids. Women, in particular, are not waiting this long anymore.” These issues rang true for Toronto law firm WeirFoulds LLP, which is in the midst of moving away from lockstep and toward a merit-based pay system. “Lockstep is antiquated in a couple of ways: It’s not the best way to service clients and it’s not the best way to service associates,” says Lisa Borsook, the firm’s managing partner.

“On the one hand, clients don’t want to pay high hourly rates for a low or intermediary level associate to do basic legal work … and associates want to take different routes to equity partnership. Women, especially, experience a different trajectory, and we don’t want to lose them.”

Accordingly, WeirFoulds implemented a system in which associates who join the firm are in lockstep for the first and second years. But for those in their third year and above, the process is wide open. “Each year now, we look at every associate’s performance, how they compare to other associates, both in their year of call and not,” says Kim Mullin, a partner with WeirFoulds and chair of the firm’s associate committee.

“Now, some junior lawyers are making more money than some who are older. We’re moving toward decoupling compensation from year of call altogether.”

Currently, the firm is relying mostly on performance reviews to make such determinations. Partners who’ve worked closely with the associates are asked to rate them in a number of categories. Associates are then provided with a copy of the written review a few days before meeting with partners and members of the firm’s associate committee.

“Associates are evaluated on many things, not just knowledge of the law. That’s only part of the equation,” says Borsook. “We want our lawyers to be well regarded in a bunch of different categories.”

These include their relationships with existing clients, their ability to generate new clients, and their participation in professional organizations and firm administration. “These are always subjective elements,” she adds. “So we’re going to take some time to determine the levels of competency well.”

Seytfarth Shaw LLP, a national law firm in the U.S., has also established and implemented a set of core competencies for its merit-based pay system. Associates are evaluated on a set of competencies that fall under three main headings: legal excellence, client value, and building a practice, says Rebecca Matthews, the firm’s director of professional development and legal recruitment in Atlanta.

In addition, the firm has three different levels of non-partner lawyers: associates, managing associates and senior associates — and each level has its set of competencies. “Associates should be able to perform well in all competencies before they’re promoted. In fact, reviewers are asked to indicate the frequency with which they see competencies demonstrated,” Matthews says.

The process takes on an extra level of complexity, given that the partners who evaluate the associates and the firm’s lawyers’ development committee must place associates into one of nine rating categories. “It doesn’t stop there,” she adds. “We then make sure we’re treating them all fairly at the firm level, across the [nine offices in the U.S.], and at the department level.”

Setting up such systems is extremely laborious and requires a firm-wide commitment from all partners, says Matthews. However, Veale sees a danger in the process: “They may spend a tremendous amount of time doing a transition [to merit-based pay], but because of apathy, they’ll focus back on the number of hours billed. You can have [the system] by name, but if the process is not established, it will go back to the way business was being done.”

Calgary-based Burnet, Duckworth & Palmer LLP (BDP) introduced merit-based pay a decade ago, reveals Dino DeLuca, a partner at BDP who heads the firm’s associate compensation initiatives: “Hours billed do not dictate who’s a better lawyer. The numbers are just a starting point; they don’t tell the whole story.”

The firm adopted the system under the rationale that not all associates are created equal, and that “those who are excellent should be compensated for that distinction. We all evolve on our own time frame, and some do it on an accelerated basis,” DeLuca says.

The impetus for establishing a merit-based pay system came from the way the firm compensated partners. “This is a very entrepreneurial firm, and the ability to earn high pay is never restricted by age or years at the bar. Rather, it’s based on the quality of work and relationships with clients,” he says. “We needed to bring that approach down to the senior associate level … as we got more comfortable, we kept bringing it down. We then realized that after a year and a half at the bar, we can see a difference.”

BDP adopted this approach when the economy was strong, but that was actually a key selling point, DeLuca says: “We had to make sure we were paying the associates, especially the strong ones, at or above market rate. We didn’t want someone leaving for another firm because compensation was going to be $10,000 or so more a year. The main reason for adopting meritbased pay was internally focused, but we also realized that we needed to reward our own people.”

Regardless of why firms are adopting merit-based pay systems, it is the right thing to do, says MacKay: “Lockstep has been around a long time and it doesn’t consider that people develop at a different pace, nor does it leave room to reward the stars.” And although establishing such a system is “a huge leap of faith for many firms, as this requires a massive amount of resources and work,” it’s worth the effort, she adds.

“Firms should look at this as a talent- management strategy. They all compete for lawyers and clients, and without good lawyers [being recognized for their solid work], the competition for clients is lost.”

Pablo Fuchs is a freelance writer based in Toronto.