2 more law firms announce pay cuts; are they a stopgap measure before layoffs?
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Two more law firms announced pay cuts in the past week, marking a third slow week of bad news.
But the worst could be yet to come, according to Hugh Simons, a former senior partner at the Boston Consulting Group who analyzed possible job cuts for Law.com.
If larger law firms lose the same percentage of lawyers as in 2008 to 2010 during the financial downturn, there will be 20,000 jobs lost, Simons wrote. Most of the departures—17,000 of them—would be in the nation’s top 100 grossing law firms, he said. The other 3,000 departures would be in second hundred firms.
The entire legal services sector has already surpassed that number in job losses. According to the U.S. Bureau of Labor Statistics, the sector lost 64,000 jobs in April.
The two firms that announced cuts in the past week are Reed Smith and Stroock & Stroock & Lavan. More specifically:
• Reed Smith announced that pay cuts already implemented will be extended through the end of the year. On an annualized basis, the cuts amount to 14% for fixed share partners, 12.5% for counsels and 12% for associates. Pay will be cut nearly 6% on an annualized basis for professional staff making more than $100,000, if they are not subject to other employment action. Most professional assistants and other select professional staff will move to a four-day week, with corresponding pay cuts, and a small number of employees will be furloughed on a temporary basis. There will also be layoffs in the firm’s London office, affecting a small number of lawyers and staff members. The firm previously announced reduced partner distributions. (Above the Law, Law.com)
• Stroock will cut monthly draws by 20% for equity partners and by 15% for contract partners. Other lawyers and staff members will see pay cuts of 15%, although pay will not be reduced to less than $75,000 for staff members. Nonpartners with a billable hour minimum can have compensation cuts repaid. The firm is also offering voluntary buyouts for staff members and is open to reduced schedules for staff members and lawyers. (Law360, Above the Law)
Simons wrote that recent rounds of pay cuts are only temporary measures.
“There’s an innocence to some of the commentary accompanying the ongoing round of salary reductions,” Simons wrote. “They will transpire to be stopgap measures adopted by firms cognizant of the implausibility of firing someone over Zoom in the middle of a pandemic. While salary cuts shore up firms financially, [they] don’t address the fundamental problem: more lawyers than can be kept busy enough to grow professionally at the required pace. Thus, we should expect layoffs as people return to their offices. We should also anticipate churning of the equity partner ranks and another round of widening of equity partner comp ranges.”
Simons noted that recent incoming associate classes did not increase as much as they did before the 2008 recession. There has been growth, however, in the number of nonequity partners, counsels and career attorneys at Am Law 100 firms, and those groups will likely be more affected by lawyer layoffs, he said.