Earlier this week, Holland & Knight became the most-recent firm to break out of lockstep.
We’re mystified by the hoopla.
Clients aren’t complaining about lockstep. They’re complaining about value; they’re complaining about the exorbitant rates being charged for work that is either of little marginal utility or is simply too expensive relative to the skillset required to perform it.
After the jump, we use H&K as an example of why ending lockstep doesn’t solve firms’ fundamental problems.
Before this trend gets too far along, we’d like to understand what exactly these firms are thinking. So far, the list of firms that have gotten off lockstep in one form or another includes Seyfarth Shaw, WilmerHale, DLA Piper, Orrick, Baker Botts, Bingham McCutchen, and Squire Sanders, among others.
We found one comment, which hits on a theme that runs through most of the announcements, particularly telling:
But [H&K partner Adolfo Jimenez] explained that the firm had to move away from a strict lockstep system because clients demanded it. Clients were concerned about the high cost of associate time — and partner time — and looking for discounts.
To be fair, that’s Elie Mystal’s summary of a conversation with Jimenez, the partner in charge of associate development. Clients aren’t demanding a move away from lockstep, and that comment shows the communication breakdown.
Clients care about the chasm between the headline numbers (first-year salaries) and the value those lawyers deliver. Put another way, clients don’t care if first years are all making $160,000 or $125,000 or they’re scattered in between; they care about being billed $450+ per hour for work that simply isn’t worth that much.
The answer to clients’ demand is in aligning the cost of the service performed with the value delivered, but that goes unmentioned. Are we to assume that associate salaries are being reduced to reflect lower billing rates? Because that would be the only explanation that addresses the stated problem. There is simply no correlation between abandoning lockstep and lowering the rates charged to clients. In fact, there’s no correlation between abandoning lockstep and lowering the salaries paid to associates.
So why have none of the announcements come out and connected the dots to what really matters?
This whole trend of abandoning lockstep fails to address explicitly that rates and aggregate associate compensation must be reduced.
It’s nice that, presumably, a litigation associate doing document production will get billed at $340, and maybe the real-estate associate summarizing leases will go for $325, and the corporate associate doing due diligence will go for $350. But we’ll bet 99 out of 100 GCs would rather see every single one of them at $200 or less (and we’re not even going to touch on the outsourcing alternative right now). How does breaking lockstep fix that?
Yes, there’s some slight annoyance inhouse with the perception of junior lawyers’ inflated base salaries, but that’s not a lockstep issue, either. It’s a shortcut to the comparison between the value an experienced inhouse lawyer (who often started in private practice) provides compared to a novice firm associate, despite the two being paid almost the same base amount. Breaking lockstep doesn’t fix that either.
Furthermore, the complaint about value rapidly diminishes as lawyers increase in seniority. Again, the complaints aren’t that the 5th-year environmental associate shepherding a cleanup through all the regulatory agencies is overpriced. The vast majority of the complaints coming from inhouse counsel are directed at the most-junior lawyers. It’s the classic problem of deciding who should pay to train them (because the law schools obviously haven’t). It’s not a problem that’s related to lockstep either.
So while we appreciate the candor and transparency (and would like to see the base salaries mentioned in the memo), there are some pretty big pieces missing in this puzzle. But at least H&K is doing the hard work of determining compensation based on each individual’s contribution.
Which is something their clients have been doing for years.