Robert Ruyak doesn't look like a revolutionary. With his full head of gray hair and conservative business attire, Howrey's 59-year-old managing partner looks like the traditional image of a veteran litigator. But don't let his appearance fool you. Ruyak and his management team at the Washington, D.C.-based firm are doing something that almost no other Am Law 200 firm has done: They're revamping the tried-and-true method of paying law firm associates. Howrey is taking a sledgehammer to the established lockstep system, which guarantees associates salary increases every year. Instead, the firm is implementing a more competitive model: Raises, when they're granted, will be based exclusively on merit.
Under the firm's new promotion model, which goes into effect in January 2009, salary increases will be linked to evaluations and mastery of core legal skills. An associate receiving a poor evaluation could be denied a raise, while an associate receiving an exceptional evaluation might see a base salary increase greater than what the firm has offered in the past.
Not surprisingly, Howrey associates have focused on the former scenario in expressing concerns about the plan, while leaders at the firm have focused on the latter in hyping the new model. "A superstar ... may jump from what a first-year [associate] makes to what a third-year [associate] makes," said Ruyak during an interview in April. That would amount to a $25,000 raise and promotion to the next tier after only one year at the firm. But associates at the opposite end of that spectrum, whom Ruyak refers to as "nonperformers," could be denied a raise and see their salaries fall behind market rates.
For Ruyak this isn't just about the money. He views the way law firms normally recruit, mentor and train associates as flawed. This flaw is evident, he argues, in the continually high associate attrition rates and low morale across the whole industry. The changes at Howrey, which include new associate mentoring and training programs, are an effort to create a more flexible and transparent system that better serves all parties, including clients. "This is not intended to stop the rise in associate salaries," Ruyak says. "What I am concerned about is that if we are going to pay those salaries, then we better have people that are up to the task and well trained so that I can say [to the client], 'This is why we are paying $200,000 a year for this associate.'"
While clients may warm to that sales pitch, the firm's 317 associates are a harder sell. While clients may warm to that sales pitch, the firm's 317 associates are a harder sell. In June 2007 Howrey announced that it was moving to a merit-based promotion system and ending lockstep the next year. But that summer -- in focus groups conducted by a consulting firm to solicit associate input -- many concerns were raised. Howrey ultimately decided to delay the plan for a year, and agreed to refine it in response to associate feedback. (The firm's new mentoring program is one aspect of the changes that stems directly from associate feedback.) Sonia Williams Murphy, a sixth-year associate who participated in one of the focus groups, declined to talk in detail about the meeting, but when asked about the tenor of the discussions says, "Typically, people don't respond well to change."
Other associates, speaking anonymously with The American Lawyer this spring, voiced concerns about whether their salaries would keep pace with the market under the new system and whether evaluations by supervisors were the fairest way to gauge their performance. But third-year associate Nicholas Little was cautiously optimistic about the overhauled program. "We haven't seen the effect yet. It is still in the abstract. There is a general sense that the firm will do right by people," he says.
When it comes to associate satisfaction, Howrey hasn't always distinguished itself in The American Lawyer's midlevel associate surveys. This year's 45-place ranking marks the first time it has cracked the top 50 in the past eight years (although, with the exception of its 2007 scores, its recent associate ratings have continued to edge higher). Last year the firm ranked 148. But despite the improved showing, six of the 25 Howrey associates who participated in the 2008 survey expressed concern about the new promotion system, associate morale, or both. In the section of the survey titled "Tell the managing partner one thing," one Howrey associate simply wrote, "Don't change the compensation system." Another midlevel complained that associates hadn't been told enough specific details about the new plan: "This type of lingering uncertainty is not good for morale."
In the worst case, the new model could lead to associate defections. So far, that hasn't been a problem for Howrey. Its associate attrition rates have fluctuated in recent years, but still remained low. In 2006 the firm's attrition rate fell more than 4 percent from the prior year, to 13.85 percent. In 2007 its attrition rate shot up to 16.05 percent. Still, according to a study by the NALP Foundation, which conducts research on the legal profession, the average attrition rate in 2007 for law firms with more than 500 lawyers was 21 percent. (The range of attrition at these firms was between 14 and 32 percent.)
Howrey, established in 1956 as Howrey, Simon, Baker & Murchison, has a rich tradition of breaking from the pack. In 2001 it implemented a summer associate program that significantly reduced the time law students spend in firm offices and added a rigorous trial advocacy program. In 2000 Howrey decided to focus exclusively on litigation and dispute resolution. And in 2005 it was at the forefront of a trend when it rebranded itself with a single firm name. Last year Howrey's gross revenue hit $475 million, an improvement of $18 million from 2006. But over the same time period, its revenue per lawyer dropped $70,000 to $755,000 (while head count jumped from 555 to 631 lawyers). The firm has three practice groups: antitrust, global litigation and intellectual property. It counsels a substantial list of major corporations, including Whirlpool Corp. Qualcomm Inc. and Boston Scientific Corp.
But while some aspects of the firm were quite original, its associate advancement model had been similar to that of most other large firms. Each year Howrey hired dozens of first-year associates. It offered training workshops in which attendance was encouraged but not required. There wasn't a firmwide, clearly identified skill set. And the mentoring program didn't extend beyond an associate's first year. According to Ruyak, the result was a system in which associates were mainly on their own when it came to establishing the relationships and learning the skills necessary to succeed over the long haul at the firm.
As long as they stayed, associates could expect their standing, at least on paper, and their salaries to increase. Currently, annual base salaries at many large firms -- including Howrey -- start at $160,000 for first-year associates. (At some big firms there are regional differences in pay scales.) Industrywide, salaries for senior associates are a little more fluid, and bonuses for all associates can vary depending on billable hours, but not by much. Normally, associates at major law firms, including Howrey, are guaranteed raises each year. Currently every Howrey associate can expect a raise of $10,000, bringing them up to $170,000 after one year at the firm, and standard raises between $10,000 and $25,000 in each successive year of the 7 1/2-year partner track.
But the firm decided that this wasn't the most efficient way to reward associates. Beginning in 2004, Howrey's career development staff and Hay Group, a human resources consultancy, began conducting interviews with firm attorneys to formulate core competencies. In total, 90 of the firm's attorneys were interviewed. The goal was to develop a model in which skill and achievement played more than an illusory role in advancement. The following year, the Howrey Attorney Competency Model was introduced. It outlined 16 core competencies, including negotiation skills, oral advocacy, and leadership. The firm then changed its evaluation process to assess associates based on those 16 core skills.
While competency models are not new, their presence within law firms remains relatively rare. Many firms have concluded that itemized skills are contrary to the tone they want for training their associates. Pamela Winthrop, a partner at Washington, D.C.-based Hogan & Hartson who oversees the firm's H&H Academy, says that training at the firm focuses on five curriculum areas: lawyering skills, ethics and professionalism, practice management, business development and client relations, and substantive practice skills. But Hogan has not outlined specific competencies. "We don't want to lock ourselves into core competencies. We feel that practices change. And we want a much more holistic approach," she says.
Even before the adoption of a core competency model, Howrey has shown an innovative streak when it came to the initial phase in associate development. Summer associates at Howrey now spend a month at one of the firm's offices, followed by two weeks attending a demanding trial advocacy program. During boot camp, summer associates engage in practical exercises that mimic litigation, including trial work. "It is a great way of learning. We say, 'Here's how to take a deposition, now take one.' It gets people moving and gives them a sense of what it is like to practice here," says Martin Cunniff, chair of Howrey's professional development committee. That may be the case, but in The American Lawyer's 2007 summer associate satisfaction survey, Howrey had a score of 4.204 (out of range of 3.957 to 4.989) and came in near the bottom of the list at 164 out of 169 firms that were ranked nationally in the survey.
In recent years, the firm has rolled out mandatory multiday workshops, many in the same vein as the boot camp, to help associates develop their abilities when it comes to the core competencies. The most recent addition was an annual business development and client relationships academy for senior associates, which debuted in March.
Howrey now has a total of five annual academies that cover associate development at the firm. On average, each academy costs the firm $200,000. First-year associates attend a junior academy to develop basic skills needed in litigation. Second- and third-year associates attend a midlevel academy, which is put on in conjunction with the National Institute for Trial Advocacy. In addition to the new business development academy, there are two other academies for more senior associates that focus on trial skills and management abilities. "Ideally, an associate would go to an academy each year," says Heather Bock, Howrey's chief professional development officer. "Each year they will get intensive best practices training geared toward their tier level and the core competencies."
In an effort to provide each associate with individual guidance, this year the firm implemented a mentoring system that pairs each associate at the firm with a partner. In theory, a partner-mentor will advise two to four associates on their professional development. Recognizing that the mentoring abilities of some partners at the firm may leave much to be desired, Howrey held a retreat earlier this year where 80 partners received instruction in leadership and coaching skills. Partners "are not used to being supervisors outside of supervising people on cases. We want them to get involved and help associates develop a career plan," says Ruyak.
The firm is currently phasing out standard associate classifications such as first-year associate and second-year associate. All associates at the firm will be placed into one of five tiers by the end of the month. Each tier will have a range of salaries, but there will be some overlap. (The firm declined to provide the salary ranges.)
Beginning next year, Howrey's career management committee -- which is firmwide and consists of about a dozen partners -- will make decisions on tier promotions and raises based on evaluations. Most promotions between tiers will take place following fall evaluations. (During the plan's first year, evaluations will also take place in the spring.)
Calculating salaries and bonuses will also be different. Entry-level associate salaries at the firm will remain $160,000, but that is where much of the resemblance with the old model ends. The career management committee can increase an associate's salary without a promotion to the next tier. Raises will depend on the quality of the associate's work and his or her mastering of core competencies. According to Cunniff, under the new system bonuses are expected to "play less of a role" than they do under the lockstep model, and be doled out infrequently. He adds that "there will still be discretionary bonuses for extraordinary circumstances," such as when an associate brings in new business or works a high number of hours as a result of multiple trials.
Graduating from one tier to the next will depend on several factors, including attending the corresponding academy, mastering the core competencies and work evaluations. To move from tier one to tier two, an associate's work record must demonstrate substantial completion of 32 tasks and goals such as interviewing cooperative witness to obtain useful information, taking or defending depositions of minor witnesses, and preparing useful examination and cross-examination outlines. "If you want to move up, you have to punch this ticket. You have to have this background. You have to go through the academy. It is almost like a certification process in a way," Ruyak says. And with each promotion to a higher tier, Howrey will bill out that associate at a higher rate.
While lockstep promotions and salary increases are standard at most large firms, Howrey is not the only firm with a merit-based promotion system. Manatt, Phelps & Phillips, a Los Angeles-based firm with 308 attorneys, has for more than a decade had a promotion system that doesn't rigidly adhere to lockstep. The firm has seven associate tiers, and promotions are based on evaluations. Paul Irving, co-chairman at the firm, says, "It was implemented to recognize that people progress at different rates and levels. This crafts some flexibility into associate advancement." But according to one current and one former associate at Manatt, despite those intentions, the firm's promotion system operates similar to a lockstep with all associates, except for rare exceptions, advancing and receiving pay raises each year.
Other firms have shown a willingness to diverge somewhat from the normal lockstep system. Greenberg Traurig's associate compensation procedures vary among markets. But according to firm President Matthew Gorson, at many offices guaranteed lockstep salary increases are standard only for an associate's first two years. Similarly at Nixon Peabody, associates progress in a lockstep manner and receive corresponding salary increases only during their first three years at the firm. After that, associates' designation automatically advances each year, but any increase in their compensation is reflective of their performance. "Junior associates are just learning the profession, and it is difficult to differentiate between them, so we have lockstep for those first three years," says John Snellings, the firm partner who oversees associate development. "But once they are past that third year, we have a merit system in our pay structure."
Last year McGuireWoods replaced its lockstep compensation model for midlevel and senior associates with a performance-based system. Under the lockstep model, base salaries for associates in the same class varied by no more than $5,000. But according to Thomas Cabaniss, the firm's managing partner, the new system allows for much greater variety in base compensation. "The main motivation was to identify our best people and make sure they got paid fairly," he said. "The ability to be paid based on how well you were performing was limited [under lockstep]."
Some firms, such as Orrick, Herrington & Sutcliffe, are in the process of reviewing their own lockstep associate promotion model. Ralph Baxter, chairman of the firm, says that a lockstep system has advantages, such as reducing competition between associates and freeing firms from worrying about granular distinctions in raises. But he adds, "Given the changing nature of the law practice, the changing expectations of clients, the changing outlook of Generation Y, law firms would be remiss if they didn't re-examine the associate model."
However, given the responses of other law firm leaders, Howrey isn't likely to have more company anytime soon. Keith Wetmore, the chair of Morrison & Foerster, says that his firm considered abandoning its lockstep associate promotion system about six years ago but dropped the idea after associates expressed concerns. "The benefits of lockstep-based compensation are very dearly cherished by associates. There wasn't enough money involved to make our most valued group of employees unhappy," Wetmore says. He adds that variable bonus compensation is a better way to delineate between associates.
J. Warren Gorrell, chairman of Hogan & Hartson, says that while his firm has never considered abandoning its lockstep system, he has followed Howrey's new model closely. "Unless you have a narrow practice [like Howrey's], there is no easy way to determine competency and experience. Lockstep is a pretty good proxy."
Howrey's new associate advancement and training system is one in which there are very few proxies. Instead, thousands of new decisions must be made. Leaning back in a chair in his corner office, Ruyak says, "We are kind of being adventurous here. We're waiting to see what actually works." And whether the associates will actually like it.
Howrey by the Numbers
Equity Partners: 137*
Profits Per Partner in 2007: $1,005,000
Revenue Per Lawyer in 2007: $755,000
Headquarters: Washington, D.C.
Number of Offices: 14
*As of Aug. 31, 2007