Law Practice Management

Will Changes in Associate Pay and Training Hurt Law Firms?

Law firms that are cutting associate pay, adopting new training programs and abandoning lockstep compensation could find themselves at a disadvantage when the economy recovers, a legal recruiter says.

Writing for the Recorder, James Smith of Solutus Legal Search says the demand for legal services will likely rebound, and so will pay and billing rates. Pay and rates for new associates may lag for a while, though, until the demand for their legal services recovers and the market absorbs deferred associates, he says.

In the meantime, the economic downturn has spurred some law firms to change the way they pay and bill for associate time. Smith sees some potential problems. “These developments may be rational responses to market conditions, but throw a pebble in the pond, and there will be ripples,” he says.

Law firms that adopt lower salaries in conjunction with apprenticeship programs may take a hit to their on-campus recruiting, Smith says. “If firms see their on-campus recruiting efforts being hurt by having lower junior associate salaries than their peer firms, will they abandon their new training programs or be compelled to raise salaries?” he wonders. “If they persist in maintaining the programs, but raise participant salaries, will they be willing to accept a drop in their profits or will they again seek to shift the marginal salary costs to their clients?”

Firms that abandon lockstep compensation may also have problems with recruiting and retention of associates, unless a substantial number of law firms follow suit, he says. He sees other problems as well. Firms will need to expend additional administrative time as they identify the criteria for promotion to the next tier and determine pay for associates within tiers. Should associates within a tier be paid more if they exhibit greater aptitude, bill more hours or work for a high-demand specialty?

“It also will be interesting to see if and how clients respond to new tiering systems,” Smith says. “If the tiering systems result in greater transparency regarding associate qualifications, will clients try to exercise greater control over which tier of associate works on a given project? If so, will that stifle or foster associate development and advancement between tiers? Likewise, will clients try to exercise greater control over associate billing rates?”

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