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LA Firm Cuts Associate Pay, an Indication of Cracks in Lockstep Pay Model?

Posted Apr 1, 2009 4:40 AM CST
By Molly McDonough

Salary reductions at the Los Angeles-based Am Law 200 firm Allen Matkins may mean fewer layoffs. But is it also a sign that cracks are showing in the lockstep compensation model for new associates?

That's the argument of the Recorder, which reports that three Am Law 200 firms have now cut salaries, including Cleveland-based Thompson Hine, and the now-defunct WolfBlock, based in Philadelphia.

"It's clear that firms high on the Am Law 100 list are salivating for a salary cut as well," the Recorder notes. But the paper, quoting Peter Zeughauser, says firms in the top 10 to 15 aren't likely to slash salaries until they've exhausted all other options.

"They want to do it. [But] if the market doesn't follow, then they are left out there alone. ... They need to be convinced that the market will follow," he is quoted saying. "That means one or two market leaders need to do it first."

The Recorder notes that the BigLaw "salary wars" started in California during the dot-com boom, which forced competitors to follow suit. N.Y. firms stepped it up again in 2007 with starting rates of $160,000.

Rather than cut pay, many firms so far have frozen salaries, deferred start dates or laid off lawyers.

Comments

1.

B. McLeod
Apr 1, 2009 7:35 AM CST

This is incredible.  It couldn’t be more obvious that these pay levels need to be significantly reduced.  Even the consultants have said so.  But these firms are going to go into the tank waiting for “market leaders” to do it first.  Lemmings.  Cliff.  Disaster.

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2.

Bjorn T.
Apr 1, 2009 8:33 AM CST

Even consultants!? Wow!

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3.

ATL Too
Apr 1, 2009 2:02 PM CST

Its also happening in Atlanta.  Morris Manning recently cut the salaries of their tax and real estate lawyers by 20%.  So its not just lock step in a market thats breaking, its lock step within firms.

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4.

P. Bryson
Apr 2, 2009 8:05 AM CST

As a top 5% with experience but without a job lined up, I have to say that I would be more than willing to work for significantly less than the $140k these firms have been paying in the past. Thompson Hine, are you listening?

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5.

W. Warren
Apr 3, 2009 6:38 AM CST

I do not begrudge anyone the amountof money they make, and it is fine with me if large firms pay more than in house jobs.  However, it is asinine that a first year associate would make more than some of my highly competent seasoned lawyers.  It is one reason much of my day to day outside legal work is handled by smaller, less expensive firms.

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6.

A. Smith
Apr 3, 2009 9:55 AM CST

I get that Gen Y has this misbegotten sense of entitlement, but when and why did we Boomers buy into it?  The economics didn’t work in boom years for the high associate (particularly baby lawyer) salaries , they sure as heck don’t work in the bust.

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7.

buster56
Apr 3, 2009 10:24 AM CST

The Recorder has a limited historical memory if they think that Big Law salary wars started in 99-00 with the dot.com boom. Salary inflation started much earlier in around the mid 80’s when Cravath or another Wall Street firm started paying its new associates the astonishing, for those days, starting salaries of $65,000. Everything escalated in lockstep up the associate ranks from there and it has continued ever since. The dotcom boom added fuel to the fire but this phenomenon is about 20-25 years old. I agree with the earlier sentiment that a first year lawyer is making more than state and federal judges, seasoned government prosecutors and in house lawyers with 20 years of experience. It has to stop.

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8.

C
Apr 3, 2009 11:23 AM CST

“It has to stop.”

Oh noes! People are making more than federal judges and “seasoned” government prosecutors! The horror!  These are private businesses free to pay anything they want to whomever they want.  Get over it.  Stop the jealousy.  It’s just making you all look like idiots.

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9.

Jeremy
Apr 3, 2009 11:51 AM CST

I agree with C.  We are capitalists.  If you want to pay starting associates $260,000 starting, you have every right to do so.  The market will correct itself, not because the “more talented” attorneys are making less, but because sound business practices will demand it.

We very well may be seeing the peak of associate salaries right now, but don’t blame the recipients.

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10.

John D
Apr 3, 2009 12:25 PM CST

Also agree with C.  The pay of 1st years is set by the market.  It usually makes sense to pay 1st years a lot, so that you have really good productive people in the pipeline in years 3+.  In house lawyers, government lawyers, judges, etc.  may be excellent lawyers in many cases, but the market places a much higher value on elite private practicioners.  The reason—elite private practicioners generate a ton of revenue (provided there is work) and have extremely unpleasant, demanding jobs. Being a federal judge is very prestigious and highly interesting.  A federal judge doesn’t have a boss yelling at you to do 16 hr day of doc review.  Being an inhouse lawyer, typically has significant lifestyle advantage.  Even at $160K, a first year associate more that earns her pay, imo.

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11.

Andy the Lawyer
Apr 3, 2009 12:41 PM CST

Shakespeare was right when he posited that “the law is an ass.”  But if there’s anything we’ve learned from the past 1 1/2 years, it’s that the “free market” is a much, much bigger ass—particularly when it comes to compensation.

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12.

Roger Dorn
Apr 3, 2009 12:52 PM CST

OK, all of you boomers who think Gen Y’s have a misplaced sense of entitlement—I’m not sure if you’ve checked the price of law school tuition lately, but it’s surely a hell a lot higher than when you went to school and it cost 5K/yr.  And don’t give me that B.S. “everything else cost less back then too, and inflation caused the current state of affairs”—- NO, actually, if you look at the massive inflation of law school tuition as a percentage of salaries and/or cost of living for Gen Y’s, you’ll see that tuition is much higher, proportionally.  Also, I can go right down the line with cost of housing, etc., in major cities where the Big Firms employ Gen Y’s by the thousands.  So, before you make any more uninformed comments, please do some math—that is if you still remember how.  Of course, you can always have your first year associates do the math for you (as they do everything else for you).  I think that if you’re interested in hearing what they have to say, you’ll learn it is hard enough to survive these days with law school debt, cost of living, etc., MUCH LESS try to get ahead in this world.

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13.

CB
Apr 3, 2009 1:01 PM CST

Note that the hourly rate at the largest and best paying firms doesn’t even reach $100/hour once the hours are counted (per online stats). Tennis pros and golf pros make at least that in the big markets where the big law salaries are paid. Hard to imagine that practicing law at a top firm in a top market is worth less per hour than a tennis pro’s time, but it is so. I think the focus on lawyers being overpaid is off-mark.

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14.

H. Dean
Apr 3, 2009 2:01 PM CST

Pardon the nick-picking, Andy, but it was a Dickens’ character who said “The law is a[sic] ass.”

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15.

WP in CA
Apr 3, 2009 6:11 PM CST

“Note that the hourly rate at the largest and best paying firms doesn’t even reach $100/hour once the hours are counted (per online stats).”  I realized something similar back when I was at BIGLAW firm, where hours-based bonuses kicked in at 2000, 2200, and 2400 hours.  The amount you got, per hour, for the bonus was *less* than the hourly rate for your base salary.  For each additional hour of not seeing your family and friends, working out, etc., was worth less?  This simply did not compute for me.  I’m much happier at a small firm where I can earn $175K based on an 1850 year.  Not nearly as much as someone with my same seniority in BIGLAW….but I’m leaving the office at 7:30 tonight and I’m not working this weekend.

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