Bonuses Cast Spotlight on Merit-based vs. Lockstep Divide

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Bonuses Cast Spotlight on Merit-based vs. Lockstep Divide

Postby A&O » Wed Dec 22, 2010 7:17 pm

Interesting entry from Steven Harper

Firms that abandoned lock-step in favor of merit-based compensation a year ago are now reversing course. Why?

The prevailing theory is backlash. Associate dissatisfaction pervades big law; some saw “competency models” as thinly disguised efforts to reduce associate wages. ( ... hbxlogin=1) Restoring lock-step, the argument goes, should enhance morale.

But when firm leaders really care about morale, they’ll ask associates to evaluate partners on mentoring, training, and overall humanity — and, at least to some extent, partner compensation will reflect the results. Instead of looking into those unpleasant mirrors, managers are likely to form a new committee investigating the “associate problem,” as if it were a mystery.

One way to improve morale would be to tell associates the truth earlier. But quality merit review is tough work. Performing it properly is not in most large firms’ short-term economic interests. For starters, they can’t bill the time to clients.

When I chaired my firm’s associate review committee in the 1990s, the process focused on a single goal: Identifying the best among a distinguished group. That meant evaluating specific skills, developmental needs, and future prospects. To squeeze out personality conflicts and internal politics, partners from outside their assigned associates’ practice areas gathered performance information. Then the committee actually deliberated for an entire day.

In an era when lateral partner movement among firms was rare, promotion decisions were akin to choosing a new family member. Admittedly, subjective judgments produced the distinctions, but partners generally played fair with the next generations. The integrity of the process produced widespread respect for outcomes.

In those days, compensation didn’t turn on billable hours. High outliers (those billing over 2,400) were singled out for counseling that doesn’t happen anymore: “If you burn out, you’re no good to us or anyone else.” Low outliers (below 1,600) attracted a different concern: “Partners aren’t giving that person work. Why? Is there a performance problem?” Between those extremes, hours had little impact on reviews or compensation. As incredible as that now sounds, it was true throughout big law. Just ask the senior partner who is pressing you to “get your hours up.”

Transparency worked. Knowing relative position allowed associates to handicap prospects while they were most marketable. Performance ratings translated into monetary distinctions that spoke for themselves. Anyone displeased with the message could explore other options.

New York firms pioneered lock-step. Exploding client demand caused many more to follow. Uniform compensation to a class allowed partners to postpone the day of reckoning for those with limited futures. Unpleasant news went undelivered.

Some partners rationalized the failure to provide more candid feedback: “We need the bodies to run our business. We’re paying them decent money. So they’re doing ok.”

The first two points were true: A myopic MBA-mentality emerged and departing associates often found that their new positions paid substantially less than they had been making. But doing ok? Some lost their jobs, their lifestyle, and chunks of their self-image in a single belated conversation.

Lock-step was also supposed to improve morale by reducing internal competition. But as compensation packages ballooned, associate satisfaction plummeted and voluntary attrition skyrocketed. Bonuses tied to hours but unrelated to quality erode meritocracies and morale — as does boring work that doesn’t enhance attorney skills.

Modern mega-firms now face the toughest task. To perform truly merit-based reviews, they must develop meaningful individual assessments for legions of associates — sometimes hundreds in a single office. Without proof that the exercise contributes to the bottom line, what incentivizes firms to devote the non-billable time required to perform reviews diligently? Management’s concern for the future, you say? At most big firms, that means projecting next year’s equity partner profits. They’re counting on laterals to fill quality gaps.

Associates should be skeptical about how firms now promising merit review will deliver quality feedback. But lock-step that camouflages meaningful information is no panacea. Student loan repayment demands notwithstanding, sooner is better than later when it comes to acquiring the knowledge that frames life’s most important decisions. ... onus-time/

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