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  • May 2020
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"Mini Case: Climbing the Legal Ladder" Analysis

S150

5th May 2020

The compensation structure of the Sullivan & Cromwell is lock-based or seniority based compensation structure in nature. The compensation structure is linked with the years of experience, and skills & competencies of the employees. With the increase of job tenure, the skills and experience of the employees are expected to increase.

The skills and abilities as well as performance if the employees are assumed to increase with the increase of job tenure (Torres-Coronas & Arias-Oliva, 2013). The senior employees receive more salaries and benefits than that of the junior employees.

This salary structure of the Sullivan & Cromwell can be considered as fair. This salary structure is widely followed in most of the organizations (Torres-Coronas & Arias-Oliva, 2013). Given circumstances and condition of the law service industry (demand and supply of the law graduates and employees), and industry condition (post financial market condition), the lock-based or seniority based compensation structure of the Sullivan & Cromwell will be seemed to fair to the prospective and existing employees.

            As compared to the merit based compensation structure as followed by Dewey & LeBoeuf in the existing market, the lock-based or seniority based compensation structure is more stable and flexible in the post financial crisis market condition.

Majority employees always prefers and prioritizes stable salary and compensation pay over volatile large pays (Edwards Gibson, 2015). Also, with lock-based or seniority based compensation structure majority of the employees convinced for with the idea that their salary will be increased with the seniority level as compared to that of uncertainty in the salary increase attributed by performance uncertainty with merit based compensation structure (Jarrett-Kerr, 2009).

Beside these, the employees will consider the fact that under merit based compensation structure, average employees are discriminated as senior employees are considered more important, and less replaceable than that of the junior counterparts (Paauwe, 2014). Also, the merit based compensation structure can pit employees against each other, and lead to unfair employee competition (Kumar, 2015).

             The pay structure of the Sullivan & Cromwell are expected to motivate some work behaviors that are wholesome to the organization’s overall performance. These work behaviors are as follows.

  •  Associates and partners are expected to concentrate on obtaining gain & benefit by spreading risk among the employees rather than prioritizing, and depending solely on the top performers (Paauwe, 2014).
  • Associates and partners are expected to not engage in grabbing clients, and leaving the organization. Associates and partners will realize the fact that with seniority they will reach to the top positions and enjoy high benefits (Paauwe, 2014).
  • Associates and partners are expected to being loyal, and not engage in intra-office competition (Kumar, 2015). Associates and partners will realize the fact that with the increase of job tenure and performance level, they will reach to the top positions and enjoy high benefits (Paauwe, 2014).

Answer to the Question No: 02

           The associates who will join four years ago, now will be on the fifth year on the organization. Associates who have already passed four year in the organization will be entitled to get base salary of $230000, and bonus range of $0-$50000. The basic salary of the associates is increased by a specified amount in each subsequent year after joining.

This increase is with incremental rate with the increase of time ($10000 increase after first year, $15000 increase after second & third year, and $20000 increase after fourth year). This incremental rate is in the line with the idea of paying more salary for more seniority and experience.

           Now if the salary of the new associates increased by$20000, it would be justifiable to raise salary by $20000 at each subsequent layer in the pay structure. Increase of salary of the organization should be incorporated at every layers of the pay structure (Paauwe, 2014). Otherwise, dissatisfaction among the employees in the mid and top layers will be increased.

Understanding may go to the employees in the mind and top layers that they are ignored, and prioritized less than the fresh employers if salary is only increased for the entry level lawyers (Thomas, 2013). It would be further better that if the salary will be increased at the incremental rate at each subsequent upper layer to reflect the idea of paying more seniority and experience.

Answer to the Question No: 03

            In the Wall Street Journal, the writer claimed that associates at the bottom funnel money to the partners at the top. Here, the issue that partners receive extensive high compensation than that of the top level associates is not refutable.

But the notion of channeling money to the top level partners from the attempts of associates at the bottom funnel is not completely supportable. Here, the write has ignored the issue of strategic role played, and high competencies & skills belonged by the partners than that of the associated before making such a notation.

            Partners are legal owners of the firms and has share to profit beside their regular salary. On the other hand, associates are the employees of the law partnership firm. Partners have high commercial awareness, technical competence & skill that that of the associates (Jarrett-Kerr, 2009). Also, partners are more experienced and skilled that that of the associates.

Also, partners require to work for the client solicitation and hunting which is purely a strategic role and important for successful business running. Existence of lot of talented employees without customer base is meaningless. Due to playing greater strategic roles, and exerting high commercial awareness, technical competence & skill, it is expected that the compensation for the partners will be very high than that of the associates.

Answer to the Question No: 04

            Sullivan & Cromwell has already cut its maximum bonus tier just few years ago. In the last year, the maximum bonus tie has been decreased.  The last year the bonus range of the early career associates and eight year experienced associates was $2500-$20000.

If the bonus of the Sullivan & Cromwell is estimated to be $1000- $5000, then the bonus of the employees of the organization is again being decreased and negatively affected. But the rate of decrease of the bonus of the top tier employees are higher than the entry level employees.

More specifically, from this decrease of the bonus, eight year experienced associates will be more affected than that of the early career associates. Whereas the bonus of the early career associates will be decreased by 150%, the bonus of the eight year experienced associates will be decreased by 300%. Consistent Decrease of bonus will have a negative impact on the reputation and image of the organization to the potential and existing employees.

            If the bonus of the early career associates decreases by 150%, then it would be difficult for the Sullivan & Cromwell to hire and recruit qualified school law graduates. The potential qualified school law graduates will consider the jobs offered by the Sullivan & Cromwell not attractive and feasible.

Also, if the bonus of the eight year experienced associates will be decreased by 300% in this year, it will be very difficult for the Sullivan & Cromwell to retain its experienced and skilled associates. Due to decrease of the bonus at dramatic rate, the experienced and skilled associates will not be willing to stay in the Sullivan & Cromwell, and will seek better employment opportunity (Torres-Coronas & Arias-Oliva, 2013). The effect of losing ability to retain the qualified and employees will be more devastating than non-ability of attracting new qualified employees (Thomas, 2013).

Answer to the Question No: 05

            Sullivan & Cromwell follows a compensation structure where the lawyer’s salary is in line with the experience (number of years), and performance. The compensation structure of the Sullivan & Cromwell is lock-based or seniority based compensation structure (Kumar, 2015).

In Sullivan & Cromwell, senior associates and partners with greater experience and competence receive higher compensation, and vice versa. On the other hand, Dewey & LeBoeuf follows a compensation structure where layer’s salary is linked to the key performance indicators i.e. commercial awareness, technical competence, client development skill etc.

The compensation structure of the Dewey & LeBoeuf is merit based compensation structure (Jarrett-Kerr, 2009). In Dewey & LeBoeuf, associates and partners having high market exposure and performance receive higher compensation, and vice versa.

             Each of these approaches (lock-based or seniority based compensation structure and merit based compensation structure) has some relative advantages and disadvantages as compared to other.

Advantages of merit based compensation structure

  • Showing high commerciality where compensation is linked to the key performance indicators i.e. commercial awareness, technical competence, client development skill etc. (Jarrett-Kerr, 2009).
  • Recognizing the performance & abilities of the employees which lead to high motivation of the employees towards job performance and productivity improvement (Torres-Coronas & Arias-Oliva, 2013).
  • Distinguishing and recognizing personal attributes, and earning power of the employees (partners and associates) (Jarrett-Kerr, 2009).

Disadvantages of merit based compensation structure

  • Expressing high volatility to ensure fixed compensation burden in the financially stress and difficult market condition (Edwards Gibson, 2015).
  • Creating unhealthy intra-office competition (Edwards Gibson, 2015).
  • Arising high risk of grabbing clients, and leaving the organization by the partners (Paauwe, 2014).

Advantages of lock-based or seniority based compensation structure

  • Emphasizing on the sharing model of partnership, and obtaining gain & benefit by spreading risk among the partners (Edwards Gibson, 2015).
  • Providing outstanding diversification and reinforcing a culture of efficient teamwork (Kumar, 2015).
  • Avoiding the risk of grabbing clients, and leaving the organization by the partners.
  • Promoting employee loyalty, and discouraging intra-office competition (Kumar, 2015).
  • Providing flexible work structure (Edwards Gibson, 2015).

Disadvantages of lock-based or seniority based compensation structure

  • Resulting overvaluation to underperformers or shirkers, and undervaluation to exceptional high flyers (Torres-Coronas & Arias-Oliva, 2013).
  • Causing de-motivation to the high performing employees.
  • Causing difficulty in establishing an equity ladder for lateral hires (Jarrett-Kerr, 2009).
  • Causing cultural problems i.e. coasting, remain in comfort zone etc. (Torres-Coronas & Arias-Oliva, 2013).
  • Showing lack of commerciality (Edwards Gibson, 2015).

 

References

 

Edwards Gibson. (2015). Retrieved January 14, 2017, from Lawyer salaries - lockstep vs. merit-based pay: http://www.edwardsgibson.com/article/view/53

Jarrett-Kerr, N. (2009, June 29). Nick J-K. Retrieved January 14, 2017, from How Lockstep Works: https://nickjk.wordpress.com/2009/06/29/how-lockstep-works/

Kumar, S. (2015, July 24). FORTUNE. Retrieved January 15, 2017, from 5 reasons merit-based pay hurts average workers: http://fortune.com/2015/07/24/5-reasons-merit-based-pay-hurts-average-workers/

Paauwe, J. (2014). HRM and Performance: Achieving Long Term Viability. London: Oxford University Press.

Thomas, M. (2013). Mastering People Management . Melbourne: Thorogood.

Torres-Coronas, T., & Arias-Oliva, M. (2013). e-Human Resources Management: Managing Knowledge People . Melbourne: Idea Group Publishing .

 

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Matthew

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