Sutherland will shift from lockstep associate compensation to a performance-based system in January.
Sutherland's roughly 175 associates will be grouped into three tiers -- junior, mid-level and senior -- with advancement and pay increases pegged to their mastery of various skills. In the lockstep system, associates advance as a class, based on their start dates, and receive the same base salary, plus merit bonuses.
Competency-based pay addresses clients' resistance to paying a higher billable hourly rate for an associate simply because the person has advanced a year at the firm, said Sutherland's managing partner, Mark D. Wasserman.
"I do think clients have been angered by automatic increases without a discussion," said Wasserman.
"The driving force in the change is to be able to communicate to the client that an associate has a certain level of skills, and that's what you're paying for," said Kristy Weathers, the firm's professional development director. "Now, the person is not a fourth-year just through inertia."
Sutherland joins a handful of firms nationally that have announced a switch from lockstep to competency-based pay, including Orrick, Herrington & Sutcliffe, Bingham McCutchen, Reed Smith and Howrey. Locally in Atlanta, McKenna Long & Aldridge did away with associate classes in favor of competency levels in 2007.
Sutherland has also set starting salary at $135,000 for its new Atlanta associates, said Wasserman. Starting salary will remain at $160,000 in the firm's New York, Washington, D.C., and Houston offices.
Most of the firm's 27 new associates are joining in January, but several have already started work, said Weathers.
Other big Atlanta-based general practice firms -- King & Spalding, Alston & Bird, Troutman Sanders and Kilpatrick Stockton -- made s over the summer. The cuts dropped Atlanta starting pay by about 10 percent from the former market rate of $145,000, to between about $130,000 and $135,000.
Last spring, McKenna dropped Atlanta starting pay to $120,000 but did not cut pay for its current associates, saying their pay was already pegged to their performance level.
Many associates nationally have voiced the fear that linking pay to individual competency levels instead of paying by class year is a way for firms to quietly pay them less.
But Wasserman said Sutherland is not cutting associate pay by switching to competency-based compensation. "This is not a design to end up with a lower aggregate compensation number for associates. We're not budgeting to that for next year," he said.
"The point is not an overall reduction [of associate salaries]," he added. "I think some will make more money, and some will make less."
Pay ranges for the three levels of associates have not yet been determined, said Weathers. She said the firm's associate review committee, which sets compensation, will determine each associate's salary between mid-December and early January, after associate reviews are completed.
Under the new system, first- and second-years will generally be classed as junior associates, third- to fifth-years as mid-level associates and sixth-years and above as senior associates.
The firm's current bonus system will remain in effect, and associates will have the same 1,950 billable hours requirement, said Weathers.
Weathers said Sutherland has not set a range for billing rates at each level. Rates are set by practice group leaders and vary by practice group and client, she said.
Wasserman said the old system of pegging an associate's billing rate to his or her class year has already gone by the wayside. "We are having individualized conversations with clients about rates and lawyers" for each client matter, he said.
Wasserman hopes that a competency-based system will increase clients' willingness to pay for junior lawyers, since the firm can vouch that an associate at a certain level has certain types of experience and skills under his or her belt.
"It makes sense to get an increase in someone's rate where experience has increased in a meaningful way," he said.
Since associates must demonstrate skills and experience to advance a level, said Weathers, a practice group leader negotiating staffing with a client can say, "here's where a person falls within the range, and here's what's expected and what's been achieved," which could help in setting the rate.
Levels-based compensation builds on the career planning program that Sutherland established three years ago, said Weathers, a former tort litigator at King & Spalding who became Sutherland's first professional development director in 2006.
Each associate already crafts an annual career plan in consultation with a partner-mentor that lays out the experience and skills he or she hopes to develop. Now Sutherland is tying the goals established in each associate's individual career planning to advancement and compensation, Weathers said.
"It's the same system as for partners, really," said Wasserman.
He said Sutherland announced the switch away from lockstep compensation to associates in August, then sent a memo with details on the new system at the end of September.
Weathers said associates must master core competencies in five areas to advance a level -- professional development, client development, firm involvement, pro bono/public service work and practice group skills.
Litigators, for example, are learning the mechanics of legal research, taking depositions and oral advocacy, she said. A mid-level litigator could be preparing more complex depositions and working with expert witnesses, while a senior level associate would be expected to manage some cases and supervise more junior attorneys.
"Moving into a position where they are acting autonomously and taking an ownership role is the ultimate goal," said Weathers.
The new system requires partners to spend more time on associate evaluations. Wasserman thinks it will be time well spent.
"It will force practice group leaders and partners to step back and see how a team is put together and how staffing is set," he said.
It can also lead to more difficult conversations, he said, since there are no automatic promotions.
"If there is a fourth-year in level one, they are going to want to talk about it -- and they should. Or if there's a hard-charging third-year who thinks she should be in level three, she can talk to people about it," said Wasserman.
"People dislike having difficult conversations -- even partner people -- and this will force more of those," he said. "Now people are going to have to be a little more direct, which is sometimes not that great but always useful."
Wasserman added that the merit-based system allows associates more choice in their career paths at the firm.
"It's a more flexible staffing model," he said. Hard-chargers can advance faster and make more money, while those who want to work less can do so, with the understanding that they will advance more slowly and get paid less.
"There is skepticism, sure, but I think it's a better system for associates," said Wasserman.
"Not all of them will believe that until it's in place," he added.