Unratcheted Derelicte; AAR Performance Pay is Really Really Good Looking

In an excellent article, aptly entitled Fears over performance pay, the AFR (4/6) gave an overview of the apparent shift in international legal circles from lock-step remuneration, based on experience, to performance pay. It is speculated in the article that major Australian law firms will soon also largely embrace a performance pay model.

performance pays on the catwalk

In the article, Allens Chief Executive Partner Michael Rose – who at the time was probably preparing for his annual “I’m-a-make-believe-derelict” sleep-over with 700 CEOs* – is quoted in the following way:

Allens Arthur Robinson expects to implement a performance pay regime before the end of 2011. Managing partner Michael Rose insisted the move was in line with client’s expectations. “Clients are not convinced that ratcheting lawyers salares and lawyers rates solely by reference to seniority is sensible,” he said.

We’re not sure which “clients” Rose has purportedly been speaking to, but we would anticipate that either:

• they are not lawyers; or
• they are not lawyers who have worked in a major corporate law firm where billable units are commonly reverse engineered several days, or weeks, after the fact.

In particular, we would anticipate that these “clients” have no notice that Allens Arthur Robinson was the target of one of recently retired Victorian Supreme Court Justice David Byrne’s most strident swipes at corporate law firms. Reporting Justice Byrne’s last interview as a judge, The Age noted (29/5):

In a case that still makes Byrne seethe, he lambasted Allens Arthur Robinson’s $3.7 million bill for costs in a case that ran for six years before it went to trial. The final bill was expected to hit $8 million, but this sum could not be recovered anyway because the opposing party sank into receivership. At the time, Byrne described AAR’s bill as ”a great reproach on the legal system” and said ”some restraint, some proportionality and perhaps less greed should be shown”.

Just a bit less greed, hey?

Would the removal of the “ratcheting” of the salaries of the lawyers responsible for this $3.7 million bill encourage more expedient, less greedy justice? Or would it encourage lawyers whose performance is measured on utilisation rates to chase a rabbit down every conceivable hole in order to place upward pressure on their utilisation and, hence, strengthen their greed claim for higher “performance pay”?

And how does the prospective unratcheting of lawyer salaries tie-in with the momentum we have seen from some clients toward fixed-fee billing?

We would argue that the “uncapped lawyer bonus plan” promulgated by Freehills, as well as the “unratcheted performance pay” in the Allens Arthur Robinson pipeline, is at odds with:

1. the generally enlarged inhouse legal teams across major Australian corporates;
2. the related move toward tendering and fixed-fee arrangements;
3. the rife disenchantment among junior lawyers of non-existent work/life balance; and
4. the overarching perception in government, the judiciary and society that major corporate law firms are “money-making machines”, presided over by a handful of uber-greedy corporate types, that make access to justice something of a running joke.

The AFR article made the following pertinent point:

Performance pay solely based on KPIs would result in lawyers working many more hours, NSW Young Lawyers president, Puoyan Afshar, said. This would leave the door open for the billable unit to increase its domination over lawyers’ lives. Work life balance is a key issue for junior members of the profession, with many jumping ship after two to five years, citing burn out and depression as reasons.

Is performance pay a step in the right direction, or will it leave corporate lawyers even more morally derelicte?

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*If you want to support the St Vincent De Paul’s CEO Sleepout – which we think is a fantastic charity (hat tip to Mr Rose for taking part) – click on this link.