Law firms keep jacking up their associate salary packages in desperate attempts to keep their young lawyers from flying the coop. But the more money they throw at associates, the faster they leave. Why? Simply put, law firms don't understand what associates really want in a law firm.
Nowhere is that clearer than in their obsolete training and advancement policies. The age-and-stage model of associate promotion and compensation is discredited and dying. Here, a leading professional consutlancy offers firms and their associates a new model—and a chance to break the cycle.
The early weeks of 2000 brought 40 to 50 per cent salary increases to associates at some top American law firms. This incredible occurrence made the front page of The New York Times, which reported that these raises initially were intended to stem the tide of associate departures for legal and executive positions at Silicon Valley start-ups. Firms in other cities generally have followed suit, since all kinds of companies are thriving — and aggressively hiring.
It is a rare associate, however, whose main reason for leaving a firm is money. Associates are becoming increasingly vocal about their unhappiness with nearly all aspects of their professional lives. Law firm managers struggle to determine how to reverse rapidly declining morale and retain their best people.
It is clear that many law firms have failed to investigate and appreciate the causes of this internal morale crisis. Instead, as the recent pay increases demonstrate, management continues to try to buy its way out of the problem.
Because of this trend, billing rate increases will be dramatic in some firms. Some clients will pay these higher rates; others won't — creating adversarial relationships with some clients. In many firms, a large portion of the increased associate compensation will be borne by the partners, creating a level of internal tension never seen before in firms.
Associates will pay as well: billable hour expectations will be raised to unreasonable levels, continuing to fuel the exodus from firms. There are no winners.
Firms participating in the spending spree could learn a lesson from past experience. As reported in the same Times article, many top firms on both U.S. coasts hiked starting associate compensation by 30 per cent or more during the last decade. And yet, associate turnover is higher than ever, up to 75 per cent at some firms.
Ironically, frustrated firms that are spending record dollars on salaries also are grappling with the high costs of this turnover, estimated to exceed $250,000 per associate for large firms in metropolitan areas.
What's going on? Are greedy Gen-Xers unwilling to "pay their dues"? If more money is not the answer, how can firms successfully address associates' complaints?
Only after firms understand the influence of market trends on the ways they recruit, retain and reward associate talent can they find more profitable and successful ways to do so. In particular, firms need to take a hard look at the current associate "age and stage" track system. This inflexible system fails to address the fact that associates neither develop nor produce at the same levels.
What attracts associates?
As the free market for intellectual capital intensifies, law firms will have to provide compelling answers to the question: "What inspires our talent to work here every day?"
Today's associates are clear about their expectations of future employers, whether these associates are coming right out of law school or from other firms. This "associate wish list" summarizes the qualities that associates say attract them to particular organizations and motivate them to stay:
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A sense of belonging to an organization — as opposed to a loosely knit group — with a clearly articulated purpose and awareness of its place in the market.
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A precise definition of his or her role in the organization.
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A belief that this role is recognized, respected and valued.
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An abundance of high-quality and interesting work, diversity of matters and the opportunity to work on high-profile cases or with high-profile clients.
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Partners who are "the best and the brightest" — who are intelligent and quirky and who have outside interests. The chance to work with other associates who are bright, competent and similarly motivated.
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A competitive salary.
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An equal commitment to pro bono, and commercial work and an environment that is liberal, tolerant and open to diversity.
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The ability to establish great credentials to further his or her career, regardless of tenure.
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A sensible balance between professional life and personal life.
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Prompt, high-level responsibility, a fast track to becoming a good lawyer.
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Guidance, mentoring and feedback that promote continuous learning.
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A casual atmosphere and informal relationships with partners.
This list makes it very clear that money is not the issue, and bloated salaries and bonuses will not improve associate morale and retention. Although competitive compensation packages are important, many associates say that they would gladly sacrifice money to obtain more control over their professional and personal lives.
Why? Money does not afford them self-respect.
Nevertheless, firms persist on offering money as a primary motivator, even though it does not work. In fact, it serves to negatively impact morale with the insulting implication that throwing money at a problem will make it go away.
Why money doesn't motivate
More money under the "age-and-stage" track system does not work because associates' complaints are not about the money, but about the system. A law firm recruits associates with promises of roles appropriate for motivated professionals capable of managing client affairs and generating new business.
By using "age and stage" as the sole criterion for advancement, firms up until recently have been able to convince intelligent, bursting-with-potential young people to sign up for six to nine years of mandatory subordination, without exception, before possibly granting them the right to claim authentic professional status within the firm.
In a dynamic marketplace, however, with all kinds of companies valuing their intelligence and potential, associates clearly view this system as demoralizing. The accompanying financial inducements make it even more demoralizing, with time served as the single and automatic determiner of compensation.
This business model just does not work anymore, and really never has. It is no wonder that associates feel indignant and offended, not underpaid, as they walk out the door to accounting firms, financial institutions, and clients offering respect and career advancement regardless of their age or stage.
Develop a system
Recruitment and retention programs need to respond to the legitimate career concerns of associates.
The partners who drive a firm's strategy, including management and powerful rainmakers, should play integral roles in these programs, establishing and abiding by a talent standard or profile that enables them to identify in potential candidates and current associates the desired skill sets that can be cultivated for the benefit of the individual, the firm and the client.
It is also a superior message to clients: "We may ask you to pay higher billing rates for some of our people, but they are our stars and are worth it in value delivered." Unfortunately, the current message is, "We have to pay them more, so we have to charge you more, so the partners can maintain their levels of income."
Law firms must move toward a training system that encourages high-level performance, improves morale, and economically benefits firms and associates. Hildebrandt International proposes a simple, albeit somewhat radical, alternative that is being used by professional firms and others in the corporate world.
Eliminate the age-and-stage model—the class system that promotes the superstars with the slackers at the same rate every year—and reward performance, not time served.
A carefully constructed, performance-driven system trains associates to be good lawyers and to think like partners/owners. Unlike the traditional model, the new system offers more equanimity between billable hours and non-billable activities. This allows associates to better balance their priorities.
In a performance-based system, associates do not automatically move up in rank and pay every year. Instead, their careers and compensation progress as they meet higher performance goals and take on increasing levels of responsibility.
Firms willing to embrace a performance-based system must commit to a much higher level of training and supervision. They first must ensure that partners and associates have a common understanding of what it means to be a partner and what talents are valued. The definition of equity partnership should be expanded.
However, firms should explore other structures so that alternative career paths can be developed without creating negative images. For economic reasons, many firms are raising the bar for partnership. For example, the lowest-paid equity partners will earn at least $250,000; until the contribution of an associate or income partner justifies this level of compensation, promotion will be delayed.
The expectations of equity partnership should be included in writing in associate orientation materials, training checklists, personal development and performance plans and performance level advancement requirements.
Firms should institute a 360-degree valuation program in which clients, other partners, associates and staff evaluate the partners' demonstration of these qualities. By holding them accountable for their roles in implementing this system, partners' commitment to training, supervising, and mentoring associates should improve.
Firm managers should design training checklists to provide guidelines for gaining experience and developing skills through incremental levels of responsibility. Firms also should have associates create and implement personal performance plans, which will highlight the value of setting goals, incorporate the training checklists and make evaluations developmental.
Finally, firms need to define specific performance levels and slot associates into these levels based on performance, not tenure. In a broad sense, criteria for determining each associate's slot should include technical competence, professional competence, client relationships, professional relations, personal development and profitability.
Creating four hypothetical performance levels can help you do this (the number of levels may vary by firm). There are two main options: (1) all associates slotted in a level have the same salary, or (2) multiple compensation levels exist within a level.
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Level One. The associate:
- provides a variety of services under direct supervision;
- generally performs task-oriented work;
- applies the basic skills of legal research, writing and analysis;
- accepts responsibility for successful completion of assigned tasks and projects;
- meets billable hours and revenue expectations, although the expectations may be lower for the first year;
- works as a team player;
- earns the respect of other lawyers and staff;
- is a good citizen, which includes following the rules and taking an active interest in the firm's success and long-term well being;
- satisfies requirements outlined on training checklists; and
- demonstrates superior potential to be a Level Two associate.
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Level Two. The associate:
- displays all attributes of Level One associates;
- accepts responsibility for successful case/transition management;
- accepts responsibility for exceptional client management;
- accepts responsibility for productive training of other associates and paralegals, as assigned;
- initiates involvement in trade, professional and other types of associations;
- begins credibility building (e.g., writing, public speaking, etc.);
- meets or exceeds goals from personal plan; meets or exceeds hours, revenue and realization expectations;
- receives general instruction and moderate degree of supervision;
- sets priorities for accomplishing work;
- performs project-oriented work, with some client management responsibility; and
- demonstrates superior potential to be a Level Three associate.
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Level Three. The associate:
- displays all attributes of Level Two associates;
- accepts responsibility for controls, priorities and procedures for accomplishing work;
- performs varied project-oriented work;
- accepts responsibility for training and leading others (becomes a team builder);
- accepts significant client management responsibility;
- exhibits refined communication skills and presentation style;
- satisfies requirements from training checklists;
- meets or exceeds goals from personal plan;
- analyzes and understands clients' needs quickly;
- understands and is knowledgeable about clients' businesses and their industries;
- instills full respect and confidence; and
- demonstrates superior potential to be a Level Four associate.
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Level Four. The associate:
- meets all requirements for Level Three associates;
- communicates clearly and effectively;
- begins to manage more complex matters (becomes a team leader);
- participates very actively in training other associates;
- shows interest and skill in activities that likely will result in business development;
- exhibits a higher level of commitment to marketing; and
- demonstrates readiness to be considered for the next level: partnership.
Associates work their way through the levels without regard to class. The key is to keep raising the bar at each level. The leap from one level to another should be meaningful; there has to be a real sense of accomplishment tied to making the move. The rate at which an associate passes through each level thus is determined by his or her own performance.
This way, the firm offers potential superstars the opportunity to progress more quickly and does not automatically and unduly reward underperformers.
Rewarding performance, not time served
Eliminating associate classes means that the firm must develop a new compensation system. Because advancement within a performance-based system relies on achievement at each performance level, it follows that compensation parameters should be set for each level.
Associates in a performance-based system should understand that their own motivation and performances determine their salaries – not the number of years since law school graduation.
A firm should award bonuses only to the associates who demonstrate outstanding levels of achievement by exceeding the goals in their performance plans and the requirements outlined on the training checklists.
At the same time, the firm will need to have the proper training and development systems in place to assist those who are dissatisfied with their incomes and career progression and want to improve their levels of performance.
Transitions under the new system
Old habits die hard. To transition out a lock-step compensation system, follow these steps:
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Adopt written guidelines explaining how the new system works, with special emphasis on definitions within the new system.
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Implement a wide-ranging approach to educate partners and associates and to test their reactions.
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Develop a list of pitfalls and challenges and include a response to these concerns in the final guidelines.
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Using the new system, analyze the current position of every associate to determine proper slotting. Ideally, most are slotted about where they should be in the new system. However, some may be slotted too high, and some may be slotted too low.
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Associates who are slotted too high should not suffer immediately. Tell them about the deficiency and give them a reasonable amount of time to cure it.
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Immediately move up associates who are slotted to low to the appropriate levels.
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Require each associate to complete a personal development and performance plan for the upcoming year. This is goal setting, not self-evaluation. The personal plan should incorporate appropriate activities from the training checklists, as well as additional contributions needed in order to move to the next level in the new system.
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Slot all associates into the new system.
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Two partners should meet with each associate to discuss the slotting and the personal plan for the upcoming year and to answer questions.
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Allow for regular communication with each associate during the year as to contributions, compared to the personal plan and the training checklists.
If firms are to improve their current recruitment and retention efforts, management must implement programs that address the morale issues in their firms. The firms that want to motivate and reward talent need to abolish the inconsistencies inherent in their current associate track systems, which are economically self-destructive and alienate all but a few.
Changing the system makes both human and economic sense. Law firms must reassess the way they value their associates and the behaviors they currently reward, and instead offer associates the opportunity to maximize their talents under a system that motivates them to perform to their highest potential.
Don Akins is with Hildebrandt International's Naples, Florida, office. He can be reached at dakins@hildebrandt.com. This article is part of Hildebrandt International's "Associate Retention Alert" series. For the full text or more information about associate retention, visit www.hildebrandt.com.