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Thompson Hine’s Pay Cut Comes With Hourly Incentive to Recoup Lost $

Posted Apr 9, 2009 4:30 AM CST
By Molly McDonough

Until the recent recession, the practice of cutting salaries to help a company's bottom line was considered rare.

But cuts in lieu of more layoffs are likely to become more common. And the Wall Street Journal notes that law firms are no exception.

Its example is Cleveland-based Thompson Hine, which instituted a pay cut for the first time since the Great Depression. In February, the firm announced it was laying off 12 lawyers and 29 staff.

Then in March, some 200 associates and nonpartners were forced to take a $17,500 salary hit. (Starting salaries at the firm were in the low $100,000s.)

"This was an unusual and aggressive step," David Hooker, the firm's managing partner, tells the WSJ. "I was nervous [because] anytime you do something like this, it creates anxiety."

But Thompson Hine offered a performance incentive that would allow some lawyers to recoup a portion of their pay cut. Those who bill 1,750 hours can recoup $7,500 of the lost pay, and those who bill 1,900 hours can recoup all of it, the WSJ reports.

One associate is quoted as saying that the pay cut news actually came as a relief on the heels of news elsewhere that large firms were making layoffs.

"The natural anxiety of the unknown was taken away," says associate Jared Oakes.

Comments

1.

B. McLeod
Apr 9, 2009 7:33 AM CST

So the cuts were actually part of the firm’s “No associate left by Hine” program.

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2.

You call those hours?
Apr 9, 2009 3:08 PM CST

The insurance defense firm I work for has a similar plan.  If I bill 2000 hours this year, I get to keep 100% of my paycheck.  Otherwise, I lose 100% of my paycheck.

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3.

Lowly Solo
Apr 10, 2009 2:23 AM CST

This is why I love being a lowly solo.  The economy isn’t half bad for me.  I actually have former law school classmates calling me for lunch, presumably to see if I have any work to refer them?

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4.

Boston
Apr 10, 2009 7:11 AM CST

For only never seeing your family or having no social life, you can have your normal salary!  So many firms are using these tough economic times as an excuse to cut salaries.  Makes me sick.

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5.

newt1989
Apr 10, 2009 7:34 AM CST

All that does is encourage inflated billing.  We give bonuses based on dollars collected—once I collect 2x my salary, I share in the remaining collections.  I will hit that mark in June.

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6.

N369RM
Apr 10, 2009 8:22 AM CST

Let me see if I get this right.  Business is slow so they cut everyone’s salary by 17K, but if the associates BILL lots of hours they get it back?  What is missing here of course is that time on the books is going to go up, whether the work is there or not.

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7.

Hadley V. Baxendale
Apr 10, 2009 8:27 AM CST

The “2x salary” is an interesting formula, probably based on the presumption that each lawyer’s overhead (incl. benefits) equals his salary.
At the Biglaw model, even as used in smaller firms, the associate, salary partner and even junior partners take home about 1/3, or less, of the revenues they bring in.  After their own salary, they are paying for their overhead, a non-productive fee-biller’s overhead, wasteful extravagant overhead, non-profitable location overhead, high rent district office subsidy and partner profit.  Is that realy worth working your butt off for?  Move to solo/small firm and flip the ratio, where your overhead is a third, or less, of your revenue and you keep all the rest.  All of it.

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8.

N369RM
Apr 10, 2009 8:35 AM CST

The simple fact is that there are going to be a lot of inflated hours being billed and in the end, Thompson’s clients, who are already paying way too much for the work, will now be paying even more.  If this works the way it should, more clients will leave as their bills go even higher, resulting in less work and more inflated billing and more clients leaving, and the cycle not stopping till there are lots of people billing lots of hours to an even smaller client base.  Those who get out now save the most money as a client.

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9.

Kalifornia Arnold
Apr 10, 2009 4:58 PM CST

Cutting an associate’s pay and then finding away to cough up more money for the firm sounds like a variation of the “Hine-lick” maneuver (that crack was in bad taste—I make no butts about it)

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