Changing the Rules on Associate Compensation

June 26th, 2009 by Jim Cotterman

Maybe this time the profession is serious about associate pay changes.  I’ve been a bit skeptical because the clamor for change is not new.  What is new is the breadth of the realignment of pay scales and the corresponding announcements of apprenticeships (the boldest moves to address client resistance to hiring newly minted lawyers), training programs and other activities.  All of these are positive steps.

However, associate compensation still appears out of line.  The reductions announced so far are about half of what is probably required (i.e. going from $160,000 to $145,000 should probably go much further to $125,000 or even $100,000); thus resetting the wage scale by a decade.  This is a painful reality and one that surely will fire up emotions.  But the tide has changed; clients are moving quickly and assertively to reduce legal spend.  This goes beyond alternative fee arrangements (AFAs). Costs of outside legal bills are going to come down, and from the early signs — down dramatically.  Services will be competitively bid, outsourced, off shored, converged, internalized, re-engineered, and even forgone.  Now add the AFAs to create greater certainty regarding total cost along with a healthy measure of risk transfer from the client to the law firm.  All of this will bring the major line item in any law firm — the cost of people — under assault.  This will affect total employment, wage scales and job expectations.  The pace of the salary change is directly affected by the pace of change in what clients will pay for legal services.

Once the scale is in line, what’s next?  Pay packages are likely to be less generous on the upfront money (say goodbye to signing bonuses), with reduced salaries and more modest benefits.  Bonuses, possibly semi-annually or quarterly, will ease some of the pain.  But expect the eligibility performance thresholds to be rigorous.  There is likely to be more emphasis on skills and competencies, particularly as they relate directly to delivering valued advice and counsel to clients.  But do not for a minute think that those criteria will overshadow revenue generation.  It’s where the money to pay associates comes from.  There is also going to be a concerted effort at looking beyond what associates know and do to how they conduct themselves.  All three (skills/competencies, revenue, behavior) will be expected.

To do this firms will define what they want from an associate over many years, build metrics and methods to grade performance, and determine what that performance is worth.  Hopefully this will set milestones for career progression and even multiple career paths.  Time to rethink up or out, tiered ownership and the array of tactics deployed over the past twenty years.  The trade-off for associates — lower remuneration hopefully mitigated by better career development and opportunity.

This entry was posted on Friday, June 26th, 2009 at 5:30 am and is filed under Economics, Associate compensation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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