The recent NYT article, “Chill of Salary Freezes Reaches Top Law Firms”, once again highlights that the recession is causing many firms to rethink their compensation structure. In the short term that means freezing salaries. “There is this sense that firms didn’t act prudently during the boom and now they are getting religion, and that it’s better late than never…Many associates we have spoken to think the freeze probably saved jobs.” In addition, many firms are also taking the long term approach of moving to a more merit-based compensation and advancement system. David Lat, founding editor of AboveTheLaw.com, suggests “I think some breakdown in the lock-step mentality might actual stick. Firms are recognizing that on a certain level, it makes sense to pay people in a way that reflects their performance”
But can merit based systems become a reality in a profession steeped with tradition and typically averse to change? For Henry Bunsow, a partner at Howrey, the answer is yes. Bunsow states, “I would say the leaders of Howrey are very concerned about client perception and the cost of legal services and justifying the cost of legal services… And the idea that the compensation levels are arbitrarily set, when those compensation levels in turn result in hourly billing rates, makes no sense from a business standpoint – no business in this country would run themselves that way.” Howrey introduced a merit-based system in 2007.
Still, many will argue that a move towards a system without billable hour requirements or mathematical formulas will result in fewer billable hours. There are two answers to this argument. First, for many law firms, culture dictates lawyers work long hours, so a minimum billable hour requirement is unnecessary. Second, focusing on the quality of hours and not the quantity can have a greater impact to firm profitability than any negligible impact on hours. The key is to make the hours count. As Bunsow also notes, “Our goal is to attract and keep the best people, to compensate them for what they’re worth and to justify their cost to the clients, because we think clients are willing to pay for high quality legal services.”
To implement such a system, law firm managers should begin with full disclosure for the reasons for changing to a new system. Next, evaluation criteria should be discussed. If the goal is improving quality of work, special consideration should be given client satisfaction. Recently, the Association of Corporate Counsel began working on a “Value Challenge Index”. Criteria for the value proposition can be easily applied to a merit based evaluation and includes:
1. Understands goals and expectations
2. Legal expertise
3. Efficiency/process management
4. Responsiveness
5. Innovation/Flexibility
6. Results delivered
7. Values: Pro Bono/diversity/green/professionalism
--Rick Rawls
Rick Rawls is a Senior Business of Law Consultant for Redwood Analytics/Lexis Nexis
Posted
Thu, Feb 19 2009 7:37 PM
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