Suspicious packages

September 19, 2013

Lock-step brought transparency to rewards. Now what’s going on?

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There was an advantage to lock-step: transparency. You knew where you were on the career ladder and assuming there were no massive slip ups along the way, you could pretty well plan your life and salary for the years ahead. No need for looking over your shoulder; no need to trample colleagues to get to the top.

The media loved it too. How great to be able to easily benchmark competitor firms on the value of each PQE pay band. Each year, firms would race to publish figures that would outdo each other’s pay-scales, and journalists could scoop up a wealth of ready-made copy, packed full of clear, comparative data.

Sure, such transparency generally meant competitor firms merely level-pegged each other’s pay rates. But imagine the excitement when one firm broke free with a salary hike. It’s about as close as the legal profession ever gets to market frenzy.

Then a combination of factors came along – the need to manage costs together with growing recognition that lock-step doesn’t recognise either exceptional or poor performance. And now swathes of firms have ditched or modified their associate lockstep in favour of some degree of merit-based pay and bonuses.

Opaque pay

Now performance criteria vary widely between firms both in terms of substance, clarity and consistency. And most of the systems only get more complicated the more senior you get, as more performance-related measures are added to the mix.

Take the magic circle salary announcements for 2013/14. Base salaries are typically within spitting distance of each other, regardless of the fact that three (Linklaters, Clifford Chance and Slaughter & May) confirmed pay rises for junior associates of 1-3 years’ PQE, and the other two (Allen & Overy and Freshfields) froze theirs.

But look more closely at the figures and you can also see how much more complex it is becoming. Take, for example, Freshfields. This is a firm that typically heads up the salary tables. But since launching its merit-based ‘Career Milestones’ system in 2012, it’s harder to see exactly what your pay might be.

There are four milestones, the first of which is a foundation year for newly-qualified lawyer. The next three cover two years or more with an ascending pay-scale within each. Associate appraisals determine what specific salary each associate in each milestone gets and whether they can move up to the higher milestone.

Combined with a bonus scheme that is of course also performance-related it’s not particularly clear what a rising associate at the firm might get – or how ‘exceptional performance’ would be specifically rated and rewarded.

Chancey bonuses

Clifford Chance is an interesting one too, in that it was the only magic circle firm to announce details of its bonus scheme for 2013/14. But even here, you’d hardly call it clarity. A second-year PQE lawyer, for example, could now boost their base pay of £78,200 to just over £100,000, including bonus. But there’s no indication of how many of those lawyers will actually get a bonus or realistically reach this figure.

Salary benchmarking reports are trying to keep up with these changes and trends, but it’s not easy. The PWC annual benchmarking report for law firms, for instance, gives some indication of bonuses available as a proportion of salary in top-100 firms, but can’t reveal how many lawyers actually receive this pay.

The move to merit-based pay and bonuses is a welcome shift for many. And for good reason. For too long the lock-step system rewarded underperformers and overlooked the stars. But there is a price to pay for performance measures – most notably lack of clarity and even some suspicion of underhand machinations at a management level.

But what is clear is that this shift is a permanent one. Firms are not going back to lock-step any time soon. That means associates looking for the best career and salary opportunities need to give ever-more serious consideration to exactly what the pay-deal is and how it relates to each firm’s unique performance model.

In Part Two of this feature, we’ll take a look at precisely how associates can do that. CP

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