Law Practice Management
BigLaw Pay Freeze is Part of Changing Business Model
Posted Jan 26, 2009 8:03 AM CST
By Debra Cassens Weiss
Associate salaries have jumped considerably since 1968, when Cravath, Swaine & Moore raised pay for first-year associates to an unheard of $15,000 a year.
Since then, large law firms have closely watched salary moves of one another, the New York Times reports. Many raised pay last year to $160,000. But as profits fell in 2008, market leader Latham & Watkins surprised its big firm counterparts with an announcement that associate salaries would not increase in 2009.
Above the Law founder David Lat told the newspaper that the change is “a sort of reverse ratcheting. If one firm sees a competitor lowering salaries, they feel it’s safe to lower salaries, too.”
Now associates at about 20 large law firms are seeing their pay frozen, and some are seeing other changes as their employers scramble to re-evaluate their business models.
Morgan, Lewis & Bockius is changing to merit-based bonuses, rather than bonuses based on billable hours. Sheppard Mullin Richter & Hampton is also moving to merit-based incentives.
Ralph Baxter, chairman of Orrick, Herrington & Sutcliffe, told the New York Times that over the past two years his firm has been reassessing its business model to operate more efficiently and at lower cost to clients. Toward that end, the firm is hiring several lawyers who are not on a partnership track and many nonlawyer staff members.
Lat told the Times that many law firms will be changing along with the economy.
“Law is becoming more of a business, and you will see more of an emphasis on results than in the past,” Lat told the newspaper. “I think some breakdown in the lock-step mentality might actually stick. Firms are recognizing that on a certain level, it makes sense to pay people in a way that reflects their performance.”