Firm Salaries to Fall…Quickly

According to the National Law Journal, In D.C., big firms slash associate salaries
Atlanta-based McKenna cut first-year pay in Washington to $140,000 this year and others were quick to follow suit

Washington law firms are cutting costs anywhere they can, and associate pay is no longer an exception.

Seven Washington offices have slashed salaries. Others—including D.C. stalwarts like Crowell Moring, Hogan Hartson, and Wiley Rein—are cutting pay for associates who don’t hit their billable hour goals.

“Law firms are starting to realize what was obvious to everyone else. They’re saying to each other, ‘We’ve been nuts all these years to be paying $160,000 as a starting salary,’” said Jerry Kowalski, a New York-based legal consultant. Kowalski said he expects more firms to experiment with tiered or merit-based pay structures as they look for something other than lockstep.

They have plenty of incentive. Firms don’t make money off first-year associates once recruiting costs, summer programs, summer salaries and training are factored in, said Jim Leipold, executive director of the National Association of Legal Professionals. Leipold estimates that those costs could reach $300,000 per associate before they start making money for the firm. And clients, who are facing layoffs and salary cuts of their own, don’t like hearing about high associate salaries, and they really hate paying for them.

“It was a regular comment from in-house counsel. They would request that first-years not be put on their matters,” said Jeffrey Haidet, chairman of Atlanta-based McKenna Long Aldridge, which cut salaries for incoming first-year associates to $140,000 this year in Washington. In Atlanta, the firm cut first-year pay from $145,000 to $125,000.

Haidet said McKenna was inspired by the now-defunct Philadelphia firm WolfBlock, which cut associate salaries by 10 percent last February.

Other firms quickly followed suit. Thompson Hine announced a $17,500 base salary reduction for all nonpartner lawyers, including about 17 in Washington, with a caveat that allows lawyers to earn back some or all of that amount if they bill 1,750 hours by year’s end. Baker McKenzie, which has about 95 lawyers in Washington, confirmed that it cut salaries, but the firm would not say by how much or how many people were affected. Womble Carlyle Sandridge Rice cut 10 percent off salaries for all but the firm’s top-billing lawyers. Womble Carlyle has about 70 lawyers in its Washington, Tysons Corner, Va., and Baltimore offices.

“I fully expect this to be more widespread,” said Keith Vaughan, chairman of Womble Carlyle, adding that when the firm decided to cut, it did so on the expectation that others would, too.

Eight Washington managing partners declined to be quoted by name on the associate pay issue, saying it was too sensitive. All, however, said they would not rule out salary cuts. “Any firm not thinking about associate salaries should be,” said one.

So far none of the biggest Washington firms have made across-the-board salary cuts. Hogan Hartson and Wiley Rein, which have tiered associate salary structures, have been moving lower-billing associates from top salary tiers to the bottom, something they haven’t done aggressively in past years. Both firms say they allow associates to work their way back into the top tier if their billable hours improve.

“If we pay somebody $160,000 and they don’t make their hours, we’re not going to go and ask for it back. It’s always better to have people making their hours. But if they aren’t, this does save money,” said Wiley Rein managing partner Richard Wiley. Wiley wouldn’t say how many associates were affected. But with salaries on the firm’s lower tier set at $125,000, even moving a few of the firm’s 17 first-year associates from the $160,000 tier to the $125,000 one could save the firm quite a bit of money.

Crowell Moring, which doesn’t have a tiered structure, has nonetheless been approaching individual lawyers whose hours are off and adjusting their salaries on a case-by-case basis. Ellen Dwyer, managing partner of Crowell Moring, said that fewer than 20 lawyers have been reclassified so far. “We just don’t want to get to a place where some of our peers are that have had layoffs or taken other draconian steps,” Dwyer said. Crowell has so far been able to avoid layoffs. The lawyers Crowell approached had all been at the firm at least a year.

Though they’re pushing back on associate pay, firms say being one of the first to cut salaries could hurt when it comes to recruiting talent—even now. “If you’re a new Harvard grad looking at five firms, are you going to talk to the four firms paying $160,000 or the one firm paying $145,000?” said Eric Bernthal, managing partner of Latham Watkins’ Washington office. Latham has not cut associate salaries.

All the firms are worried about staying competitive when it comes to recruiting. Dan Binstock, managing director of recruiting firm BCG Attorney Search, said targeting salaries among lawyers already at a firm can be a way for firms to push costs down while avoiding paying less than other firms for first-years. “Salaries are a shorthand among law students,” Binstock said. “Keeping first-year salaries at $160,000 is a way to preserve a law firm’s brand.”

Of course, prospective associates are hardly in a position to fuss. “Look, I know that I am not worth $160,000. But if firms are willing to pay it, I’m not going to turn it down,” said one first-year associate at a Washington-based firm who requested anonymity when discussing his salary. “If they came to me and said you’re either going to take a pay cut or you’re out of a job, I’d take the pay cut.”

If your concerned how this might impact your situation? Have questions about your career? Call Warren Recruiting at 713.524.4888.

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