Steptoe's Move to Cut Pay of 10 Associates Based on 'Fairness and Flexibility' Policy

Steptoe & Johnson in recent months has revamped its associate compensation system, clawing back some associate salaries while paying more to others. The move has attracted criticism and notice by some observers, but Steptoe’s leadership insists the changes are based on equity and “fairness” across the associate ranks.

In all, 10 Steptoe associates saw their pay reduced to 80% of their original salary, firm chair Gwen Renigar said in an interview. That’s out of the firm’s roughly 170 associates. As well as the associates who had their pay reduced because of productivity, Renigar said some associates have asked to move to 80% to accommodate life outside of work.

On the other side of the coin, she said, with six months left in the fiscal year, there are already some overachieving associates on track to make 120% of the standard pay scale.

Reginar billed the moves as the product of a larger pay scale program based on productivity and fairness that reflects true contributions to the firm. All associates that saw reduced pay can return to higher pay levels whenever they show improved productivity, she noted.

“This policy is about fairness and flexibility,” said Renigar. “It’s intended to provide equitable treatment to associates—essentially meeting them where they are. If they are going to work very hard and be full-time, that’s recognized. If they are at a point in their life where, for whatever reason, they don’t want to work full time, we can accommodate that. It is the fundamental fairness of allowing for—and accommodating—flexibility. We’re treating similar associates similarly.”

Renigar noted that some firms structure pay purely on market rates without looking at productivity, which can mean “you don’t get the same pay increase if you do more work,” while some firms pay lawyers differently based on practice, and others pay associates differently based on whether they are on partner track or not.

“We’re paying people across the country the same, and across practices the same,” she said, but adding the firm is paying “under a customized work policy based on what efforts they want to put in. There is a choice in terms of what performance they want to give as we build a high-performance culture with high expectations.”

“I’m not hiding from that,” she added.

Many law firms pay different-size bonuses—but do not change the base salary—to account for varying levels of productivity among associates.

Mary K. Young, a consultant at the Zeughauser Group, said Steptoe’s approach and reasoning for the associate pay system is unusual among Am Law 200 firms.

“Most firms are pretty much still in lockstep. You go up by year and tenure, and the bonus system is the mechanism for incentivizing hours,” said Young. “So, the idea of reducing the salary of people who consistently don’t hit their hours target by 20% is a little unusual. But frankly, it does seem fair to me.”

Young noted that it was only a small group of associates whose salary was being reduced, and that the idea made sense if Renigar was looking to build a high-performance culture.

“High performers like to work in a high-performance culture, and in a high-performance culture, people are meeting and exceeding their hours targets regularly,” said Young, adding it can be disincentivizing for high performers to see colleagues working at 80% productivity and getting paid the same.

Young said that also allowing lawyers to reduce their time to 80% by choice, to accommodate life outside the office, is also a good move for talent retention and attraction in a tight labor market.

“It’s a good thing to enable people to stay in the workforce when they have young children, or whatever their reasoning is. If you have someone who performs well in other ways, and is a very good lawyer and doing a good job, but for whatever reason isn’t making their hours, it allows you to keep them in what is a hot talent market.”

Young advises law firms to “up the game” on performance management.

She said if done right, such programs can be a recruiting advantage in the hunt for top talent.

“It is a way to keep good lawyers by allowing them to perform at a different level for some period of their life, and then go back up again,” said Young. “And it tells talented prospects that you’re serious about rewarding top performance.”

Dan Binstock, a partner at Garrison & Sisson in Washington, D.C., said while there may be a wider question of whether other firms might institute tiered compensation levels to avoid the Scarlet Letter of layoffs, that’s not what’s happening at Steptoe.

“Steptoe is simply doing this to 10 people to promote fairness, and I do not in any way think there is a reason to draw any other conclusions about Steptoe or the overall market at large,” said Binstock. “They’re actually employing good business practices and common-sense approaches, and not living by a one-size-fits-all approach. This is what people have been harping on the legal industry to be doing for many years. To draw negative inferences from this seems cynical and sensationalistic.”