Moving away from associate lockstep?

January 15th, 2010 by Jim Cotterman

Ok, so you have made the decision to change from your lock-step associate compensation program.  What next?  Here are five areas and key considerations to ensure success.
 
First, understand how much you have modified your program from a pure lockstep approach.  Did you retain the right to hold associates at any compensation point along the way?  Were bonuses tied to factors other then class year?  It is likely that you were already incorporating some “merit” concepts in your existing program.  This is important because it simplifies the transition somewhat and provides anchors of familiarity for the associates.  It also may provide some of the elements of the new program.
 
Second, determine the elements of your performance evaluation program.  What is the frequency — project or time based such as quarterly, semi-annual or annual?  Is it a multi-factor evaluation incorporating both objective and narrative ratings?  Is it tied to a set of increasing competencies, skills and experience that are level-, practice- and job-specific?  Does it relate to promotion criteria?  If a partner track position, does it integrate with partner expectations such that it logically builds towards a successful candidacy?  Are assessments correlated across the practice group, office and firm to look for grading anomalies?  Are the evaluators trained and given feedback on their evaluation skills?  Good evaluations need to have a consistent grading perspective — one person’s “A” should not be another’s “C” — which is often a problem. How do you communicate the results of the assessment?  Is it a written summary, oral or both?  Who provides the feedback and are they provided training at performance counseling?  And how does feedback mesh with forward looking individual, practice, office and firm planning efforts?  Are your compensation and promotion decisions consistent with the conclusions reached in the evaluation?  Moving away from lock-step only enhances the importance of a very robust performance monitoring and feedback program.
 
Third, provide transparency, which is an attribute of lockstep programs that is well received by the associates.  Transparency may be available by publishing (at least internally) the pay scales associated with each grade or tier that you build into the program.  This is quite common in wage administration everywhere else.  A second means to build transparency is to create a documented bonus program that actually rewards performance well beyond the expectations for the position, and/or rewards group (practice, office or firm) performance in some sort of profit sharing.  Remember, simply meeting expectations is what the salary is for.   You may have much of this piece already embedded within your lockstep program.
 
Fourth, stress the importance of communication.  There is no reason not to invite associates to participate in this process.  They can provide meaningful guidance about what they like or dislike about what you are doing currently and what they would like to see.  This provides you with a mechanism to then respond, acknowledging their concerns and addressing each either with a change or an explanation of why the status quo is preferable.  They can “test drive” options so that much of the necessary fine-tuning is done before a big roll-out.  And finally, this provides a way to ease the concerns that arise when something this important is under review.  It takes some time to do this well and an ongoing participation and communication effort will assist to keep it all in the proper context.
 
Fifth, look at the economics of what you are doing.  Are the salaries and bonus appropriate?  How will you be positioned in the market?  Will the new cost structure allow you to profit on work associates do for clients?  Will the clients be willing to pay for these individuals to work on their matters at a sufficient hourly rate or effective hourly rate for an alternative fee arrangement?  What is the cost/benefit to the firm of making the change from lockstep to merit-based pay?  Model the economics of the program based on your best assumptions and plan elements.  Will the partners support the investments contemplated in money, time and training?  Continue to monitor and update financial models as experience develops.
 

This entry was posted on Friday, January 15th, 2010 at 11:23 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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