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It is becoming harder these days to distinguish legal America from corporate America. Law firms are hiring real marketing directors, instituting casual dress codes, even deep-sixing the ampersands and 19th-century names on their letterhead. And now, a handful of major firms are doing away with one of the most distinctive industry traditions — lockstep associate pay. Most large firms pay every associate in a hiring class the same base salary. At the end of each year until partnership, associates get to move one rung up the pay ladder. Unless associates screw up badly, they get to march in tandem with the rest of their class. There are long-standing, notable exceptions. For more than 15 years, partners at top-tier Chicago firms Sidley & Austin and Kirkland & Ellis have based salaries on detailed annual reviews of every associate’s performance. St. Louis’ Bryan Cave has used a similar merit system since the mid-1990s. A large number of firms, moreover, hand out merit bonuses to associates to reward overachievers. But, by and large, firms treat associates alike because they want to discourage competition and to offer associates economic stability while they develop their skills. These are noble sentiments, but they are proving too costly for some firms. The associate-salary arms race, which pushed starting pay at top firms last year to $125,000 and year-end bonuses to an additional $40,000, has made it harder to turn a profit on associates. Firms are instituting stricter billable-hour requirements to try to get more bang for their associate buck. Inevitably, as associate pay is reviewed, with glasses distinctly less rose-colored, firms are finally capitulating to a reality they’ve long known: Not all associates are built alike. “I think that [merit-based associate pay] is a national trend,” says Chicago’s Lee Miller, co-chairman of 865-lawyer Piper Marbury Rudnick & Wolfe, which has turned to a merit-based salary system. “Basically, law firms in a lot of ways are starting to mirror their clients. Their clients have been developed as meritocracies. Plus, with the pressure of associate pay increases you have to develop merit-based pay increases.” Starting this year, Piper Marbury will pay 63 first-year lawyers a base salary that varies according to the city where the associates work. (The firm’s starting pay is $125,000 in many of its offices.) After the second year, associates are placed on one of two tracks, depending on performance. A year later, it’s three tracks. The move is not as abrupt as it may seem. Like a lot of firms, Piper Marbury had long awarded merit bonuses. It believes in recognizing top performers, and it had been drifting toward merit salaries. The 2000 starting salary hike pushed the firm over the edge. “It doesn’t seem to be a staggering number, [to raise starting salaries] from $95,000 to $125,000,” says Leroy Inskeep, a Piper Marbury partner. “But when you ripple that all the way up [the associate ranks] and with as many associates as firms have, that is meaningful dollars.” Piper Marbury didn’t reveal how meaningful, but conservatively, the ripple effect would carry a price tag of more than $5 million. The firm, the product of a 1999 merger between Baltimore’s Piper Marbury and Chicago’s Rudnick & Wolfe, joins a small clique that has recently implemented merit-based salaries for associates with at least a year or two of experience, including Cleveland’s Arter & Hadden and Chicago’s Jenner & Block. Billable hours is a key component in what constitutes merit at these firms, but partners stress that their reviews also cover subjective criteria like work quality, dedication, and pro bono. Chicago’s Kirkland has used a similar blend of the quantitative and qualitative over the years. “Our associates appreciate merit compensation as an honest statement of where they are,” says partner Kevin Evanich. “At old-line New York firms, no one ever knows how they are doing until year ten. Our people get a real-time read.” Lisa Smith, a consultant with Hildebrandt International, believes more firms will start using merit-based pay. “What you end up doing [with lockstep pay],” she says, “is paying some associates too much and others too little, so you keep those [associates] you don’t want to keep and lose those that you want to keep.” Partners at lockstep firms say they aren’t merely clinging to tradition. They concede that merit pay would trim their payroll expenses. But, they point out, the savings would be offset by the costs of administering a merit system and by the potential damage to firm culture. “If you build [associate] compensation based on individuals, what you have is an association of individual law firms,” says Michael Boone, of Dallas’s Haynes and Boone. “There is no reason for me to help others, because I’m basically an island. Why should I help others recruit, get business, collect a bill?” With a merit system, moreover, you run the risk of alienating potentially valuable associates — and perhaps driving them out of the firm — just because they have had an off year. “Some lawyers, who by the time they are seventh- to ninth-year associates will be absolute stars, may take longer to adjust,” says William Lee, managing partner of Boston’s Hale and Dorr. “There has to be a baseline so that everybody that we hire — and we hire a select group in the first instance — has a comfort level that while they develop they will be compensated fairly.” An increasing number of firms, though, are done coddling their young lawyers. And with starting associates now making as much as federal judges, who can blame the firms? The new economic reality may seem harsh, but many associates — slackers and stars alike — may prefer a merit system. As salaries have skyrocketed, associates have put in longer hours. Some would gladly turn back the clock to lower pay and lower expectations. A merit system, at least, gives associates some freedom to craft a compensation system in keeping with their work ethic. “There is no reason to have a lockstep system. People aren’t the same, and demand [for associates] is different in different [legal fields],” says Stephen Ellis, a partner at Arter & Hadden. “[Law firms] are lemming-like, and they [use lockstep systems] because law firms have always done it that way.” Like it or not, some of the lemmings have finally decided not to plunge off the cliff.

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