The value proposition for associates

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From the Recorder comes news of a 220-lawyer firm in San Diego that has decided to abandon lockstep, year-of-call-based compensation for its associates.  Luce, Forward, Hamilton & Scripps has created no fewer than 14 different levels of associate compensation, based on what type of law the associate practises and how good she is at it. Not exactly a mind-blowing approach to remunerating your employees, except in the law, where it’s still pretty radical. Luce Foward’s move follows a similar, much-discussed program at 630-lawyer Howrey LLP, which applies subjective evaluations of performance and experience to determine associate salaries. Bruce MacEwen has written about this at Adam Smith Esq. and in a recent article for National.

One line in the  Recorder article jumped out at me, a criticism of the move by a legal recruiter: “I don’t know if that will sit well in terms of creating a collegial environment…. It’s saying your practice area is worth less than, say, an IP litigator.” Well, that’s kind of the point, isn’t it? Some practice areas do generate more revenue than others, and some lawyers are better at what they do than others, so adjusting your compensation system to reflect that is simply an acceptance of market and human realities. Law firms’ traditional approach to associate compensation assumes that all associates are equally valuable, which, if you stop and think about it for a moment, really is absurd.

I think what we’re seeing here is another indication that lawyers are finally making a serious effort to extract and identify the economic value of their work. Most lawyers know, deep down, that the billable hour is a contrivance designed to make billing and remuneration simple and unconfrontational. I suspect that generally, the larger the firm (and the farther the lawyer is removed from the nuts and bolts of the business), the less the lawyer is acquainted with how much his practice costs, how much his performance and experience are actually worth, and what kind of fee structure should be built around those two points. Solos don’t have the luxury of simply slapping a rate on their invoices — they need to really understand the profitability of their practices, or they’ll go out of business. It looks like that day is arriving for lawyers in larger firms too.

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