The rise of merit-based pay models for assistants shows no sign of slowing down. But, as Alex Aldridge finds out, the jury is still out on how fair they are
The recent decisions of several law firms to bring in merit-based pay systems for assistants have led some in the profession to speculate that pay based on post-qualification experience (PQE) might have had its day.
We investigate the arguments for and against merit-based pay, look at how firms evaluate performance and speak to assistants to gauge their views on the topic.
Merit versus PQE
Norton Rose recently made the move to implement merit-based pay at all levels from newly-qualified (NQ) upwards, replacing the traditional PQE gradings with a three-tier system that divides assistants into categories known as Associate 1, Associate 2 and Senior Associate. Assistants are paid and charged out according to the new categories.
Managing partner Deirdre Walker explains the reasoning behind the firm’s decision to adopt the model. “The PQE approach is antiquated and often simply not fair. Why should a really excellent one- or two-year qualified lawyer earn less than someone mediocre who just happens to have more experience than they do?” She adds that recently introduced age discrimination legislation played a part in the decision. “It was a factor, but not the driving one. As I understand it, legal opinion is still very much divided on whether PQE will fall foul of the new laws.”
David Gray, managing partner of Eversheds, which is in the process of bringing in performance-related pay for its assistants, also downplays the significance of the legislation. However, he believes that it is important to have a remuneration structure that allows flexibility in terms of how mature assistants are paid.
“Say you have one three-year PQE who has 15 years’ experience in another profession and is very capable with clients, and another who has come straight from university. Clearly it is a good idea to have a pay structure in place that allows you to pay the first guy more.”
Ashurst is another high-profile merit-based pay convert, while across the Atlantic, Howrey became the first firm in the
Although the likes of Norton Rose and Ashurst have made big noises about their new pay models, they are not the only law firms to reward performance through their basic pay structures. Indeed, some firms have been doing so for a while. Olswang, for example, has had a merit-determined element within its higher PQE bandings for as long as human resources (HR) director Ffion Griffiths can remember. Slaughter & May operates a similar — and similarly well-established — system, while Allen & Overy (A&O) has gone even further, last year electing to pay all senior associates solely according to performance.
Where these firms differ from Norton Rose and the rest is that they do not reward performance in the junior ranks. “We wanted a pay model that strongly rewarded performance, but felt it was inappropriate to differentiate below the four years’ PQE mark. At that point, people are still learning the game,” says A&O associate HR director Sasha Hardman.
Tim Jones, management group chair of Freshfields Bruckhaus Deringer, which prefers to reward merit via a bonus scheme than through base salary, points out that clients value experience: “Law is not like football, where you can have a 20-year-old who is more valuable than a 30-year-old. Okay, as you go up the scale things change, but at assistant level clients quite understandably want experience; which means they want assistants charged out on a PQE basis.”
The maintenance of PQE for less-experienced lawyers also appeals to recruitment consultants. “I am not saying merit-based pay is wrong,” says Stephen Watkins of Hayes Legal, “but it is useful for us to have a structure to hang everything on, especially at the more junior end where otherwise it could become very tricky to differentiate.”
Accordingly, it is difficult to envision the wholesale abandonment of the PQE model in the immediate future. What looks more likely, say the majority of HR professionals and partners questioned for this piece, is a loosening of the rigidity of the lower PQE bandings in order to allow the contribution of outstanding candidates to be better rewarded. Marcus Franks, HR director at Shearman & Sterling, sums up the sentiment: “Performance is clearly becoming a far more important factor in determining associates’ pay, but it does not necessarily follow that PQE will be scrapped altogether. The most important thing is having a system that allows you to be flexible.”
Evaluating performance
Coming up with a pay structure that allows performance to be taken into account is one thing; effectively evaluating that performance is another.
The obvious way to judge merit is billable hours. However, many lawyers see this as a rather one dimensional way of assessing an individual’s contribution. As a result, firms are favouring a mixed ‘scorecard’ approach, where assistants are assessed under a variety of different criteria that take into account a broader range of skill sets.
Norton Rose has introduced five equally weighted ‘core competencies’: development and appointment of knowledge and technical skills; efficiency; business development; teamwork; and good citizenship. Assistants that score highly enough under each category move up to the next pay level.
While such systems sound nice in theory, the obvious concern is that the inherent subjectivity within them lead to inconsistencies. Another danger is that partners will deliberately manipulate their assessments of assistants in order to suit their own individual or departmental needs. One post on legalweek.com by a partner at a City firm that had unsuccessfully dabbled in merit-based pay warned: “[Merit-based pay] must be right in theory, but beware… a partner will say there is a shortage of associates in his area of practice and he cannot afford to lose one, so will insist that his second-rate associate is promoted with a first-rate contemporary.”
To minimise the potential for such unfairness, firms have taken steps to make the criteria as objective as possible. Ashurst has produced detailed guidelines in order to assist partners interpreting the criteria, while partners at Norton Rose have to provide examples to go with the marks they award.
Still, it seems fair to assume that it will take firms a while to become truly comfortable with the ‘scorecard’ approach. Eversheds’ Gray is honest enough to admit that “the subjectivity element remains a challenge”.
While there are clearly pitfalls to the scorecard approach, the fact many accountancy firms — and indeed several law firms — have successfully used variants of it for several years suggests that it can work. The key, according to Paul Olney, practice partner at Slaughters, is making sure sufficient investment is made on the management and HR side to facilitate a thorough assessment process.
“Naturally, people have agendas and partners can favour their own assistants — that is why they have to be tested on the propositions they put forward. It is not perfect, but we’ve honed it over the years to a point where it works pretty well,” says Olney.
Where do assistants stand on merit-based pay?
While few of the junior lawyers that Legal Week spoke to seemed particularly attached to the PQE model, there was a general concern that any moves away from it might not be in their interests.
“Yes, I potentially stand to make more under the new merit-based pay arrangements and, yes, I believe it makes sense to provide some kind of financial motivation for those not interested in making partner, but there is still the nagging worry that merit-based pay could just be a sneaky way for firms to save cash,” says an assistant at Norton Rose.
In particular, there were mutterings about the timing of firms’ recent decisions to ditch PQE structures, coming as they have in the midst of a downturn. Others saw merit-based pay as a PR exercise.
Phil Hough of Watson Wyatt, a consultancy that has advised several law firms on their pay models, sees such concerns as understandable, but ultimately missing the point. “People — especially lawyers — do not like change. But the fact of the matter is that the legal sector is 10 to 12 years behind other professional services outfits in the way it pays its staff. It needs to catch up. This isn’t about cost cutting; it is about making sure firms remain competitive.”
