Howrey to Ditch Lockstep Compensation for Merit-Based Model

Zusha Elinson

The Recorder

In a radical departure from the status quo, Howrey is getting rid of lockstep compensation for its associates.

The 630-lawyer firm said it will introduce a merit-based system of advancement and compensation for associates at the beginning of next year. Most big firms pay their associates based on seniority, but with the latest round of associate salary raises, some firms are turning to new schemes.

"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," said Henry Bunsow, Howrey's Northern California managing partner. "It's an insult to clients that they are continually asked to pay more for an associate simply because some months on a calendar have gone by."

Industry insiders say other firms will be watching Washington, D.C.-based Howrey to see whether its "competency model" will be deemed competent by both associates and clients.

"To say it's a bold move would be an understatement," said William Nason, a recruiter with San Diego-based Watanabe Nason Schwartz & Lippman.

While Howrey first-years will start at the market rate -- the firm recently raised them to $160,000 -- all other associates will advance through different levels based on personal evaluations instead of seniority. Each level has a salary range, and Bunsow said top performers would be paid more than market, while some could make less.

"The goal is not to have associates make less than their counterparts at other firms," Bunsow said. "If poor performers can get a better deal somewhere else, that may be a marketplace reality -- we would hope that this system wouldn't promote that."

The evaluations will be based on performance and experience, which could shorten the partnership track for some and lengthen it for others. Since Howrey is a litigation-focused firm, factors like writing, deposition, trial practice and client presentation skills will be considered, Bunsow said. Although there will be bonuses based on hours, that will be just one of many considerations in the evaluation, he added.

"We will expect certain levels of performance and certain levels of experience, and it will be the responsibility of the law firm and the partners that oversee them to make those experiences available to them," Bunsow said.

Associates will be assigned to partners who will be responsible for their development and their individual evaluations. A full-time staff person will be hired to oversee the program and to make sure that associates feel they are being treated fairly, Bunsow said.

Matthew Larrabee, chairman of Heller Ehrman, said he expects firms to become more creative with associate compensation, but that it can be difficult to buck the market trend of lockstep compensation.

"When there is a more or less uniform model in the marketplace, being different is sometimes more trouble than its worth, for instance, from the view of recruiting and retention," Larrabee said.

Recruiter Nason said clients who are used to paying rates based on years of experience may also have a difficult time adjusting to the new system, in which rates will be tied to merit assessed by the firm. "It's less quantifiable," he said. "An outside counsel simply has to trust a law firm."

Bunsow said the client was a main motivating factor behind the change.

"I would say that the leaders of Howrey are very concerned about client perception and the cost of legal services and justifying the cost of legal services," he said. "And the idea that 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."

Some of the details are still being worked out, like how many levels there will be, as the firm continues to meet with its associates, Bunsow said.