City firms incite cynicism with shift towards meritocratic remuneration

City law firms are being accused of taking advantage of the economic downturn by slashing associate pay as they move away from the lockstep model.

Several firms have already abandoned the system, with more understood to be undergoing a review of their associate development paths.

Last week (12 November) Freshfields Bruckhaus Deringer unveiled details of its associate 'milestone' model. While the firm stresses that the change was about development rather than remuneration, others have said the trend towards merit-based systems is being used to cut costs.

Allen & Overy, Ashurst, Lovells, Norton Rose and Pinsent Masons have all abandoned the associate lockstep in recent years, while CMS Cameron McKenna, Eversheds and Simmons & Simmons are among those firms understood to be looking at using similar merit-based pay scales for their associates.

But recruiters question whether a merit-based system will offer more equitable salaries and bonuses.

One recruitment consultant told The Lawyer: "In my view, what various firms have done to move to a merit-based system hasn't really made a hell of a lot of difference. It just gives firms scope to start treating associates differently.

"The problem in the legal profession is that you'd suffer dramatic consequences if you introduced a proper merit-based system. People would just leave.

"I suspect firms are trying to move in this direction gradually to avoid a backlash."

Pinsents, which moved away from lockstep three years ago, admits that its merit-based structure has saved the firm money.

"Long term, this is more cost-effective," says Pinsents head of HR Jonathan Bond. "I think adopting a merit-based system doesn't result in direct cost savings immediately, but what it does do is make sure you're spending your money wisely.

"We've been able to more appropriately remunerate associates based on their performance."

Freshfields has said that there will be "no immediate changes" to salaries, but following last year's pay freeze, which saw many firms effectively reverse lockstep bands, there are fears that firms that abandon lockstep are cutting costs by stealth.

A managing partner at a City law firm warns that the desire to save "a few bob here and there" was not worth the risk of potentially losing associates.

"How much money would you save by having different merit pay?" says the City chief. "For a massive firm it could make sense, but for others it would endanger the stability of the firm."

Those firms that have already moved away from lockstep say the change has allowed greater flexibility and encourages more directed career development among its associates.

Norton Rose, which stopped using PQE to decide associate pay early last year, claims that the lockstep system was no longer effective as a means of assessing development.

Head of HR Lak Purewal comments: "For Norton Rose the motivation was to move away from a system which is archaic."

He adds that the lockstep was "not effective" because it failed to recognise achievements.

"We may have an individual who doesn't get a great deal of experience during the period of the year, but they still move up and are still deemed to be two or five year-PQE," Purewal adds.

Some associates and students are also welcoming the move. A one year-PQE associate at a magic circle firm says: "I'm a big fan of Freshfields' decision to abolish the associate lockstep - they've really stolen the march on this. I think you should be judged on how well you perform rather than how long you've served. I could work thousands of hours and bring in loads of clients but will have to wait to be a senior associate."

Kyle Soo, a law student at Manchester University, believes that "students will be attracted to firms which operate the merit-based system because they know they'll be rewarded for how hard they work".

However, the timing of the current spate of reviews suggests to some that giving up lockstep is not driven entirely by a desire for increasing meritocracy.

"It's a market in which we can do it," says a partner at one firm undertaking a review of its system. "If they did this three years ago lawyers would have moved across [to another firm], but it's a different market now."