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San Francisco-based Morrison & Foerster is revising its associate compensation structure in 2002 to eliminate the traditional lock-step base pay for associates. In its place, it will provide a range of base salaries for each class of associates with individual compensation based on an annual performance evaluation. The firm also is keeping base pay for the current year for all associate classes at the 2000 levels and modifying its bonus system to replace discretionary bonuses with those based on meeting billable and nonbillable hour targets. The move is almost certainly a reflection of the downturn in the economy and the additional overhead MoFo and other Bay Area firms have incurred as they bulked up to respond to the burgeoning technology sector. In the last few months of 2000 alone, MoFo added nearly 300 lawyers. MoFo informed its associate representatives of the new structure in a phone call last Thursday and plans to issue an official memo this week. Associate reps immediately issued e-mails to their colleagues to inform them about the coming changes. MoFo chairman Keith Wetmore refused to talk about the new structure, as did other partners. The news “got out ahead of us,” Wetmore said. “It’s not for the public until Tuesday.” The reaction of associates was mixed. “Dividing associates into tiers really sounds like there could be a lot of unfairness and divisiveness,” said one associate who spoke on the condition of anonymity. “It’s a pretty obvious attempt to tighten the belt.” However, another associate said replacing the lock-step system with a range of salaries “is not necessarily a bad thing” since it would compensate people based on merit. “That’s 90 percent of what business involves,” he added. Attorneys also said MoFo has been moving away from a lock-step system over the last few years with the introduction of hours-based and discretionary bonuses. Consultants and recruiters said it’s a radical move for a large firm to drop the lock-step structure. But they said it could be beneficial for both the firm and the associates. Having a range of salaries for each class “might allow flexibility for someone who doesn’t want to bill a lot,” said recruiter Avis Caravello. Consultant Gerry Holt said a few of his clients have instituted such a system, including San Diego-based Chapin Shea McNitt & Carter and San Leandro, Calif.’s Meyers, Nave, Riback, Silver & Wilson. Both firms have less than 100 lawyers, compared to MoFo’s 1,000-plus attorneys. “If designed properly it becomes a performance development system,” Holt said. However, he added, firms must become better communicators and associate advocates to make that a reality. MoFo apparently has considered employee development in moving to change its compensation system. According to an e-mail sent by an associate rep to Palo Alto, Calif., associates last Thursday, the firm plans to establish a professional development group that will create an evaluation process for all associates and also oversee such tasks as mentoring and training. Whatever evaluation processes the group establishes, billable hours will be a prime factor in determining compensation. “The level of client services hours will have a profound effect on the associate’s evaluation for compensation purposes,” the e-mail to associates said. More immediately, MoFo is changing its bonus system for 2001. The firm will retain its two-tiered, hours-based bonus system that kicks in at 2,100 and 2,200 billable hours. But in lieu of a discretionary bonus — based on such factors as an individual’s contributions to the firm — a performance bonus will be instituted. It will be awarded to associates who bill at least 1,950 client service hours plus at least 300 nonbillable hours, doing such tasks as business development, recruitment and writing articles. MoFo also followed Wilson Sonsini Goodrich & Rosati and Cooley Godward in deciding to keep base pay at year 2000 levels. First-year associates will thus continue to receive $125,000 and second- through seventh-year associates will continue to be paid the same amount under a two-tier compensation structure that MoFo implemented last year. Associates billing 1,950 hours are paid a higher rate than those billing under 1,950 hours.

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