The Coming Bonus Letdown - Lockstep Continues

Thanksgiving also brings the start of the annual law firm bonus season together with the usual articles (such as this WSJ Article) featuring law firm managing partners justifying (or not) the size of their associate compensation packages and bonus structures within the context of what these firms need to do to keep their associates while maintaining/increasing profitability. What is unusual, this year, is the message that record profitability in the the AMLAW 100 tier of lawfirms will probably not be reflected in higher bonuses insofar as associates already received, earlier this year, an average raise in base compensation of $20,000 per class year.

(Let's leave aside the point that associate base compensation had not been raised in over 6 years before this years raises ; and also leave aside the unusual PR of a message implying that bonuses would be lower in a year of record profits and an unusually competitive and active lateral hiring market...)

Not surprisingly, associates at large New York firms will have little sympathy for these arguments when they are at the absolute beck-and-call of partners earning well in excess of a million dollars each - depending on profitability, and there's the rub. The problem, in this post-lockstep era, is that, within New York, only partners get paid according to their individual productivity. Associates, by and large, still get paid according to a lockstep according to class year - in most cases without regard, if the WSJ article is to be believed, for the amount of hours worked and individual productivity. Is this fair?

Historically - this trade off in favor of owner/partners has been justified, in part, on the basis of simple business risk-reward analysis - i.e., the partners, having skin in the game, have more at stake and thus should be allowed a greater share of the rewards. Arguably, however, the difference in partner-associate compensation already more then makes up for this.

The second justification has been the idea that "hard work most likely leads to partnership" which is well and good except that in the law firm world, mere "grinders" will always get passed over in favor of the associates with the relationships (client or partner) and/or "hot" technical expertise.

As a result - these associates are often left with the conclusion that there is no real reward for long hours at the lockstep firms meaning that lawfirms that recognize unusual hours contributions (Duane Morris being one example cited in the WSJ article) become increasingly appealing places to work. And legal recruiters everywhere begin to smile...

I am not suggesting that abolishing lockstep in associate compensation will be easy or will not cause disruptions (and, I admit, to the benefit of legal recruiters...). But as a goal, it represents a way of adding some honesty to the compensation process - and provides a way for law firms to truly distinguish themselves from one another as desirable places to work. It is, after all, almost a truism that the best lateral hiring strategy is making sure that your own associates don't leave for other firms. This is particularly so in an age when we increasingly read about the decline in the supply of AMLAW 100 tier attorneys, declining law school graduation numbers, law firms spending more energy searching further afield for qualified candidates, and the increasingly negative view college graduates seem to hold of AMLAW 100 tier law firm practice as a career choice. Abolishing the lockstep cartel won't change this. But it's a step in the right direction.