The Merits of Merit-Based Pay

Yesterday, Bingham McCutchen announced its move to a merit-lockstep compensation scheme. Under the scheme, associates’ base salaries will be determined on a lockstep basis that considers years of experience and hours billed. So if you are a second-year associate who bills 1,900 hours or more, you make $170,000. If you are a second-year associate who bills less than 1,900 hours but 1,500 hours or more, you make $165,000. If you bill less than 1,500 hours, your salary is frozen (see here). Bingham McCutchen’s bonuses, however, will be based on a more individualized merit evaluation. In contrast, firms like Drinker Biddle, Howrey and Orrick are moving to a complete merit-based compensation structure that generally places associates in different tiers tied to individual evaluations. (For a discussion of the difficulties of transitioning to these new schemes, see here.)

In theory, merit-based compensation structures sound great. Consider Howrey’s description of its new procedures: “‘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.’ . . . Associates will be assigned to partners who will be responsible for their development and their individual evaluations.” More mentoring and individualized supervision of associates would enhance not only law firm productivity but also client service, the quality of law firms’ products and the profession generally.

But will merit-based compensation really encourage more meaningful partner/associate dialogue and professional development efforts or just re-emphasize the importance of billable hours? Most firms using merit-based compensation structures consider an associate’s billable hour number as a significant factor in her evaluation. More billable hours do not, however, translate into quality products or meritorious performance (see here and here). In fact, efficiency itself may be among the best indicia of a truly talented associate. Will merit-based compensation structures account for and reward efficiency, or will they encourage greater inefficiency? The answer, I think, depends largely on firm culture and the individual partners performing the evaluations, but I have to say I have my doubts.

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14 Responses

  1. A.J. Sutter says:

    I share those doubts. Especially about the partners who are responsible for the development and individual evaluations. What incentives are there for them to invest the necessary time in doing so? What if an associate gets along better with another partner who’s not his or her assigned mentor? In a way, this system seems more vulnerable to politics than the old. As for efficiency, how do firms benefit from it as long as they’re billing some matters by the hour? The only way would be more business from the happy client — for which the partner is usually going to take credit.

    Reading about Morgan Lewis’s second thoughts in an article you link, I wonder why more law firms couldn’t anticipate such difficulties soon after the merit pay idea occurred to them. Like within an hour or so.

    BTW Susan Saab Fortney’s “The Billable Hours Derby” from Fordham Urban LRev is also available on SSRN.

  2. Michelle Harner says:


    Thank you for the thoughtful response and additional link to the Fortney article. I tend to agree with your points, so I do not have much to add. I will, however, just make the obvious observation that these new schemes reinforce law as big business rather than as a service profession.

    Best regards, Michelle.

  3. Ken Rhodes says:

    >>I will, however, just make the obvious observation that these new schemes reinforce law as big business rather than as a service profession.>>

    Well, I don’t like to make a black-or-white “rather than” choice. I think we have to recognize that it is the “business” aspect of the practice of law that pays the bills.

    I wouldn’t say “big,” because small businesses in service professions have the same dichotomy to deal with. In my small computer consulting firm, we dealt with the same choices as the giants like Anderson Consulting. They simply had more partners and more associates (a LOT more, of course). But the problems of compensation, mentoring, advancement, etc., were essentially identical.

  4. Michelle Harner says:


    Fair point; and I agree that it does not need to be an exclusive choice. I also appreciate your point that for those who are trying to achieve both objectives, the size of the business venture is irrelevant to the nature of the challenge.

    Your comment also highlights a problem with trying to shorthand responses. I made the observation regarding business versus profession in part to focus on the tension among a lawyer’s various duties–e.g., advocate for clients, officer of the judicial system and a public citizen “having special responsibility for the quality of justice.” (Preamble to Model Rules of Professional Conduct.) In this respect, lawyers arguably need to have an even greater concern for mentoring, training and quality of justice issues than those in service industries outside of the legal profession. This point hearkens back to concerns raised by Roscoe Pound in the 1930s when he defined a “profession” as “a group . . . pursuing a learned art as a common calling in the spirit of public service–no less a public service because it may incidentally be a means of livelihood.”

    So, your comment raises several important points for us to consider. Thank you for the comment, and I appreciate your sensitivity to these issues in your own business and experience.

    Best regards, Michelle.

  5. A.J. Sutter says:

    There are other ways in which the legal profession, while needing to pay its bills, is different from other businesses. Lawyers are “officers of the court,” sworn to uphold the laws and the Constitution (in the US) — they have certain responsibilities to society that ordinary businesspeople do not. Moreover, they’re subject to ethical rules that are enforced by the licensing authority (state bar associations), on top of the same sorts of criminal liabilities that other businesses face. Since many of those ethical rules relate exactly to the manner in which lawyers earn money to pay the bills, and since the rules are often rather gray and ill-defined, they’re a uniquely (or almost uniquely) difficult constraint.

  6. Doug Richmond says:

    As a former partner at a large law firm, it strikes me that most of these merit pay schemes are in fact schemes to lower associate compensation across the board.

  7. Michelle Harner says:

    A.J. and Doug: You both raise great points in your comments. Thanks! I also suspect that these types of pay schemes are used in some instances to encourage lower-producing associates to look for employment elsewhere. The impact of this message is somewhat muted in a lockstep scheme, at least until partnership decisions are made, etc. Best regards, Michelle.

  8. ctk56 says:

    I hope the numbers are not real examples.

    For the associate, the $165,000 and 1500 hours is a better deal than $170,000 and OVER 1900 hours, by about $20 per hour or 18% per hour.

  9. Michelle Harner says:

    I did not verify the numbers independently, but my understanding is that they are taken from the law firm’s memo explaining the new scheme. I like your observation, and it ties nicely to some of the prior comments regarding the planning and purpose associated with the move to merit-based schemes. Perhaps the real disincentive for lower producers lies in what billing at the 1,500 hour level does in the context of bonus and promotion decisions? Thank you for the comment. Best regards, Michelle.

  10. A.J. Sutter says:

    ctk56, you may be right if the associate is thinking only of wages as his or her reward. But at that early stage in their careers (and unless the psychology of big-firm junior associates has changed drastically since the early ’80s, when I was one), I expect that a high percentage of associates believe they’ve got the right stuff to make partner. In those circumstances, the number of hours worked has, they believe, symbolic value as showing how hard-working and worthy they are. More materially, long hours may also play a part — or be expected to by the associates — in the size of their bonus. I entirely agree with Doug, though, about the real meaning of the changes. In fact, it’s hard to think of an alternative reason for why firms would propose it. The bright, shiny and eminently fair connotations of the word “merit” have a lot in common with the Doublespeak spin-captions that started appearing behind Presidents during the Bush Administration.

  11. Jeff Lipshaw says:

    The numbers do appear to come from the release. As I read it, it’s also nonsensical in that there is one marginal hour worth the entire raise. And it gets worse the higher you climb in years.

  12. Michelle Harner says:

    Jeff: Thank you for the comment and confirmation. I also am perplexed by the lockstep portion of the scheme and the structure of the payment tiers. I think these new schemes raise numerous questions, many of which people have thoughtfully identified in these comments. It certainly will be interesting to watch how this all plays out. Best regards, Michelle.

  13. Keith Mundrick says:

    I hope these aren’t real numbers – the 400 hour spread between 1,500 and 1,900 is somewhat unforgiving. Imagine the associate who billed 1,899 hours and his colleague who billed 1,901…

    Furthermore, working an extra 400 hours for $5,000 sounds less than appealing.

  14. A.J. Sutter says:

    No associate will bill 1,899 hours. I remember several Decembers with a little thermometer drawn on a yellow pad to make sure I met the bonus threshold (1800 hours in the late ’80s at 120-lawyer L.A. firm). One slow year I needed to prepare a mind-numbingly huge raft of not-especially-urgent UCC-9s in order to cross the line, but I made sure my rear was in my office chair every Saturday & Sunday that month til it got done.