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Abandoning lockstep pay would go a long way towards solving the crisis in associate recruiting and retention. And it would serve firms better financially, writes Dan DiPietro

In 1729 Jonathan Swift proposed that Ireland’s poor eat their young to prevent them from becoming a burden. The reaction to his satirical essay, unsurprisingly, was shock, disbelief and bemusement. This is not unlike the typical reaction I get from law firms to a far more modest but serious suggestion.

The proposal: abandon the lockstep compensation approach towards associate pay in favour of a system that aligns pay with the performance of the individual associate and the firm, and significantly shifts the bulk of total compensation to this variable component. A performance-based pay structure would go a long way towards helping firms keep top legal talent, and it would serve firms better financially.

As client head of the law firm group of Citi Private Bank, I spend much of my time travelling around the country and to London to meet with senior firm management (the group provides financial services to more than 600 US and UK law firms and more than 35,000 partners and associates individually). Virtually everyone I encounter agrees that the key differentiator among firms is the ability to attract and retain the best legal talent. It has become increasingly difficult. But when I suggest a more flexible approach to compensation, the idea is almost invariably greeted with scepticism, if not outright dismissal.

Firms would be well served by suspending their disbelief. Despite their professed desire to reduce turnover – and notwithstanding the short-term drop in turnover this year due to the economic slowdown – firms have been bleeding associates. According to the National Association for Law Placement (NALP), firms lose 80% of law school hires within five years. With the decline in law school applications in recent years, it is going to get even harder for firms to recruit and retain top talent.

Exacerbating these discouraging numbers is an associate pool that finds that law firm life largely does not meet its goals, and is more willing than ever to ditch it for something else.

So where are law firms falling short? I would start with lockstep compensation. Even firms that have moved away from pure lockstep still pay only a small percentage of total compensation on a variable basis. In the corporate world, bonuses routinely represent more than 50% of total compensation; at a typical Am Law 100 firm, they are 15%-20%.

Lockstep is an illogical, ill-conceived approach to pay that addresses none of the issues faced by today’s associates, who bring a wide range of goals and degrees of commitment to their jobs. Neither does lockstep help firms address other concerns, such as client complaints about what they consider to be excessive associate pay and the expense and inconvenience of high associate turnover. Finally, lockstep complicates tough economic times. Associates are expensive and, with a locked-in pay structure, they can become a real burden during a slowdown. In fact, for many firms, this chicken will come home to roost in 2008.

On the other hand, a properly-administered performance-based associate pay programme can effectively address all these issues. I believe that any performance-based associate compensation programme should include the following elements:

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