Eliminate Lock-Step Model and Reward Performance, Not Time Served
Beginning at the end of 1999, law firms began accelerating the rate at which they increased associate compensation. This trend literally moved at “Internet speed:” within three months, associates nationwide were deemed to be worth substantially more than they had been when hired, sometimes only a few months earlier.
Within a short period of time, firms around the country reacted to the increases in California. Firms in New York City pushed their first-year associate salaries to $125,000 almost overnight. Out-of-state firms with offices in New York did the same. Within weeks, leading firms in just about every large city in the country implemented significant salary increases. Firms in secondary and smaller cities also joined the fray, though it took a little longer for them to move. All the while, associates sat back and watched as their salaries increased 20 percent to 40 percent.
Of course, raising first-year compensation is not the end of the game, as doing so would effectively compress the entire associate compensation structure (to the great displeasure of more senior associates!) To resolve this problem, firms simultaneously ratcheted up the compensation of second-year and more senior associates. Unfortunately, by increasing senior associate compensation, some firms pushed that compensation up to (or above) compensation earned by some partners.