No question is posed to me more frequently these days than, "What does this economic environment mean for law firms?"
To which the only sensible answer is, "It's way too soon to predict anything for sure, but each firm's own situation is sure to differ." Indeed, it's true that we've seen layoffs at Cadwalader, Clifford Chance, Thacher Profitt, and as of yesterday Thelen Reid, as noted on the WSJ Law Blog. Yet I've also had conversations with managing partners who tell me that the first quarter of 2008 is shaping up to be as strong as any last year. So what's going on?
I've written about this environment before, and recently, as in:
If I had to summarize where I stand, I'll reiterate that at this stage in the cycle I remain a "worried optimist."
But since loudly and confidently declaring one's economic predictions is essentially a mug's game (as the joke has it, "you could lay all the economists in the world end to end and they wouldn't reach a conclusion"), the real question is, What should you do?
I have a thought: Let's re-examine associate lockstep.
Again, this is not the first time I've written about this; in "Fealty to Anachronisms," I reported last June on Howrey's ditching associate lockstep. But it's time to revisit the issue.
To begin, it helps to step back and take a deep breath before we ask probing questions about a custom we take so very much for granted—one which has been ingrained as a core element of the "Cravath System" dating back to the turn of the prior century.
But if you look at our industry's practice of compensating associates from the perspective of corporate America—or even from the perspective of the putative "man in the street"—I'm put in mind of nothing so much as the New York Times music critic reviewing an early Verdi opera with an especially preposterous plot: "If I tried to explain to you why Ernani kills himself, we'd be here all week and at the end you wouldn't believe me anyway."
Isn't that about right? How on earth is it that we've brainwashed ourselves to believe associate lockstep makes sense?
I submit that in no other business does compensation turn almost solely on year of graduation or year of admission to the profession. Are we right and the rest of the for-profit economy wrong? If you're with me at least to this point, now is the opportunity of an economic cycle to re-examine this hoary tradition.
The moment's propitious because, regardless of one's views of the health of our revenue streams going forward, savvy attention to cost is always a virtue, and given the recent spike in associate salary "going rates," real money is at stake. (I might add that clients appear irrationally anything but exuberant about the associate salary spike. This may make zero sense economically but it seems to clients to make great sense psychologically. Ignore it at your peril.)
How then might you wean your firm away from associate lockstep? Start by taking a page from the playbook of firms, such as Howrey and notably Latham, that have done it already. Some ideas:
- Create "bands" rather than "years," and group associates past the first or second year into perhaps three such bands of seniority.
- Within each band, which would have a minimum, median, and maximum salary range, determine the place of individual associates based on 360° assessments.
- Permit, indeed encourage, deviations from seniority; that is, after all, what this is all about. Why not have a third-year who's a superstar earn more than a fifth-year who's hanging on by their fingernails?
- Deviations from seniority achieve a number of salubrious objectives:
- They tell the truth to associates about how the firm views their performance;
- The associate's costs begin to more roughly approximate their value to clients;
- The firm can more wisely target its scarce salary and bonus dollars to those it wants to keep, now divorced from the artificial constraints of lockstep year-by-year compensation;
- Billing partners are liberated from the awkward conversations with clients about associates' increased rates; if a client notes that a particular associate's rate has gone up, it's not because another year has ticked over on the calendar, but rather it's because the firm has decided that associate's performance—and value to the client—has increased.
Perilous times are often the most conducive to change. As a managing partner said to me, "Change is easiest when the house is on fire." Don't wait for the house to be on fire.
But explore creative alternatives to business as usual. Your partners, and your associates, will thank you for it.
Posted by Bruce at 5:55 PM |
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