Law firms are changing the way they hire, evaluate, develop, promote and pay their associates. Case in point: the accelerating interest among law firms in moving from "lockstep" to "levels."
Many firms are jettisoning the traditional lockstep system of promoting a whole class of associates each year (along with a standard pay raise and increase in billing rates) in favor of a more dynamic, performance-based system in which promotion, pay raises and pricing are based on an associate's demonstrating mastery of a well-defined set of competencies. In this new "levels" or "competency-based" system, associates from the same class year can advance at different speeds, depending on how quickly they develop their skills.
The Midwestern firm now known as Husch Blackwell Sanders is widely credited with publicly launching the first such levels system when, in 2001, it moved away from lockstep. The Washington, D.C.-based Howrey is also credited with another major change in the associate progression system when, in 2003, it developed a formal associate competency model. (The firm made the full transition to a levels system in January of this year.)
And earlier this year, Orrick, Herrington & Sutcliffe became the first mega-firm to announce that it had switched to a levels system. Since then, dozens of other firms have made similar announcements that they will be moving away from lockstep to some type of levels system.
UNDERSTAND BEFORE SWITCHING
Before implementing a levels system, firms need to understand the complexities and risks involved.
In addition to the obvious modifications to the compensation and promotion approaches, a lockstep-to-levels transition represents a major organizational change, and affects many of a firm's infrastructure systems, particularly those that involve human relations (HR). Such a transition also has significant psychological impact on motivation, morale and employee engagement.
In the traditional lockstep model, associates are promoted and given pay raises each year based on their class year. Peter Sloan, a partner in Husch Blackwell and author of "From Classes to Competencies, Lockstep to Levels: How One Law Firm Discarded Lockstep Associate Advancement and Replaced it with an Associate Level System" (Blackwell Sanders Peper Martin, 2002), aptly described this as being on "autopilot."
When a firm changes to a levels system, it necessitates a shift in mindset to a more ongoing, active management of talent, including decisions each year about who to promote. If promotions are seen by associates as irrational or unfair, a firm risks losing good people. Research by Sirota Consulting, experts on employee engagement, shows that perceived lack of a sense of equity is the number one reason that workers become de-motivated. See David Sirota, Louis A. Mischkind and Michael Irwin Meltzer, "The Enthusiastic Employee: How Companies Profit by Giving Workers What They Want" (Wharton School Publishing, 2005).
For a "levels" system to work, a firm needs both well-functioning infrastructure systems and a widely held perception that these systems are fair and accurate. As a result, this kind of transition from lockstep to levels may require an organization to upgrade some or all of its infrastructure systems. Here are some of the systems that a firm often has to improve, and at the very least should be paying closer attention to, as part of the transition:
• Evaluation: How does the firm gather data about an associate's performance, analyze the data, provide feedback to the individual and fairly apply this analysis to determine the associate's level of mastery of the required competencies? If the lawyer doesn't believe that he or she has been evaluated fairly and accurately, it matters much more in a levels system because his or her pay and seniority now hinge on it.
• Competency Model: How does the firm identify the key measures of success that determine whether an associate advances? The better the competency model, the more accurate and effective the evaluation.
What is a competency? It is a measurable underlying characteristic of an individual that is causally related to effective or superior performance in a job. Elements can include motives, attitudes, traits, learned skills, aptitudes, or a body of knowledge or expertise that one uses. More about competency models below.
• Training and Development: How good are the firm's various systems for developing the performance of their attorneys? These include formal training, CLE courses, informal training (few firms actually pay attention to this in a systematic way), mentoring, coaching, and other forms of developing and educating the firm's talent. As with evaluation, if the firm expects associates to master certain competencies and doesn't do a good job of helping them to do so, it will have disgruntled associates.
• Workflow: If associates' ability to climb the levels ladder depends in part on cutting their teeth on challenging work that gives them the ability to master the requisite competencies, then the firm needs to do a very good job of assigning matters to associates not just because the partner needs the work done, but because the work will help the associate to develop. Warning: This is the political "third rail" of law firm life.
Firms where work assignments are based more on individual partners' needs than consideration of fair distribution of learning opportunities should be very cautious about moving to a full-blown levels system. A firm with an effective centralized system of workload management will find the transition to a levels system much smoother.
• Leadership: All of the above-mentioned infrastructure systems work better when they are managed by someone close to the associate work experience. In most cases, this is a practice group leader, staffing manager or other practice management professional responsible for workload allocation. Leaders need to be prepared to make tough decisions, serve as advocates for the uniform development of the group's lawyers, and keep informed about each associate's progress. This is hard enough to do in a firm that is organized by practice groups; it is next to impossible in a firm that is organized by offices, or with no organizational structure at all. Firms should consider providing their practice group leaders with appropriate leadership training if they haven't done so already.
The reader may notice that there is a common theme running through all of the preceding points: Under a levels system, the firm must undertake greater responsibility for the development of its associates. The old "cream rises to the top" laissez-faire approach won't work in a levels system. But this is a good thing. Firms that foster greater accountability will ultimately be more successful.
UNDERTAKING THE RESPONSIBILITY
To be accountable, what are some things that firms should keep in mind with respect to each of these systems?
In the author's experience, getting the evaluation system right is both the most critical to the success of a levels system, as well as the system usually most in need of improvement anyway. Evaluation systems in most firms have ample room for improvement. Here, too, the perception by associates of accuracy and fairness is just as important, if not more so, than the actual accuracy and fairness as measured by some objective standard.
The central focus of any good evaluation system should be a systematic approach to gathering multiple data points. There are many approaches to this: 360-degree surveys, peer review, interviews by practice group leaders, outside evaluators conducting interviews, multiple feedback reports from partners and senior associates, client feedback, etc.
Evaluation systems need to be working really well before a firm launches into a transition from lockstep to levels. It's not wise to wait until after making the transition to address this system if it needs to be strengthened.
With respect to formal training and development, most firms have a well-developed system. What usually needs improvement when a levels system is implemented is the informal development process.
In most organizations, this is haphazard and individualistic, e.g., a partner gives some off-the-cuff feedback to an associate on the way back from the courthouse. Firms can make great headway simply by recognizing that these random teaching moments have enormous value for the young lawyers.
Firm leaders should consider a more systematic, firmwide approach to emphasizing the importance of such moments, providing exemplars for people to follow, collecting and publicizing war stories, offering templates or checklists, and otherwise making it easier for partners and associates to have these kinds of informal discussions. In a survey conducted by Hildebrandt in 2007 of over 10,000 associates, those in U.S. law firms rated informal training of this sort to be far more useful and valuable to them than formal training. "Hildebrandt Strategic Intelligence Report: Understanding Associates—New perspectives on associate satisfaction and morale" (2008).
As to workflow, this system, like evaluation, needs to be scrutinized before undertaking a lockstep to levels transition. A growing number of the large firms have a sophisticated workload management system that enables them to actively monitor all projects being handled by associates. These systems ensure a more fair allocation of work and exposure to a diversity of partners. It is also important to manage the associates' perceptions of the ways assignments are doled out.
THE COMPETENCY MODEL
Most of the infrastructure systems referenced above have been part of the talent management system of law firms for a long time. The one newcomer is the competency model, and thus it deserves some further attention here.
A competency model is a framework that identifies all the competencies that an associate needs to have mastered at each level along the climb to partnership and defines each of those levels in a sufficiently clear manner for the associate to understand the attitudes or behaviors expected of them. A good competency model is not only necessary for a levels system, but is really at the heart of the overall talent management system itself.
A well designed competency model can be used as the basis for recruiting, selection, training design, development, promotion, compensation, evaluation and motivation of a firm's lawyers. How well it suits these various purposes depends on how well it is constructed in the first place.
The first step is to define the desired outcomes in a measurable way. The more scientifically minded firms will hire a trained expert, usually an industrial/organizational psychologist, to help them identify outcome measures.
If an associate were to successfully master all the competencies, and thereby become an "excellent lawyer," what would that actually mean? How would one operationalize the term "excellent lawyer," i.e., translate it into a measurable set of criteria? In short, when a firm says that at the end of the process it wants an excellent lawyer, what does that actually mean? The more clearly this outcome measure is defined, the more successful the competency model will be.
Firms that simply list criteria that associates should master without also articulating what end point those criteria are supposed to lead to are less likely to see their competency models pay off. In the author's experience, too many firms either fail to address this "goal" issue at all, or else do so in a vague, imprecise or unscientific way. This failing undermines all that follows.
Once the outcome measures have been defined, the firm needs to identify the criteria which, if mastered, would lead to that outcome. There are two principal approaches to identifying mastery criteria, the behavioral event interviews (BEI) approach, and the Expert Panel approach.
The BEI approach identifies competencies that need to be mastered by conducting a series of several dozen lengthy, highly structured interviews that require interviewers with special training. The expert panel approach involves inviting a number of individuals within the firm, usually partners, to brainstorm with each other in a focus group and to come up with a list of the mastery criteria. In some firms, an interviewer conducts individual interviews with partners instead of or in addition to the focus groups, but unlike a BEI, these interviews are not done by trained experts, and don't follow the rigid scientific protocol of a BEI, but are more freewheeling and informal. This approach can be completed in just a few weeks usually, which is its greatest appeal.
Once the competencies have been identified, using either the BEI or the expert panel approach, the last step is hypothesis-testing, which can either be done by hiring individuals using the hypothesized criteria, or by training incumbents so that they master the hypothesized criteria, and then tracking their performance to see if it meets the outcome measures previously identified.
MANAGEMENT AND LEADERSHIP ARE KEY
Finally, a levels system requires a much more active degree of management by the firm's practice group leaders than does a traditional lockstep system, principally because the leaders need to insure that evaluations, training, workflow and the application of the competency model are all being conducted in the most effective way.
In an ideal world, a law firm would invest in both the selection and the development of leaders as one of its very first tasks in talent management. Since truly effective leadership can make a dramatic difference in the performance of those being led, in overall job satisfaction and employee engagement, in client satisfaction, and ultimately in profitability, one would think that an investment in leadership would be a no-brainer as the first infrastructure system that a firm would tweak.
However, to achieve the payoffs just enumerated, a firm can't simply "dust" its partners with a light coating of Leadership 101. What's needed is a long-term commitment to an intensive, skills-based, measurement-driven leadership development program that settles for nothing less than a demonstrated ROI from its leaders who have been through such a program.
This requires a significant commitment, both from firm management and from the participants themselves, and few firms have been able to muster this level of support, even though they know it's important. Again, in an ideal world, a firm would take its best potential leaders and develop them into true leaders, and then enlist their support in helping the firm make the transition from lockstep to levels.
Moving from a traditional lockstep system to a levels system is a much more ambitious undertaking than many law firm leaders realize. It requires careful planning, months of continuous buy-in efforts, profuse amounts of internal communication, and above all, an appreciation for the impact that this change may have on the other infrastructure systems of the firm and vice versa.
Larry Richard, an organizational psychologist as well as a former trial lawyer, heads the leadership & organization development practice at Hildebrandt.