OK, so they’re not laying off. But most of the area’s largest law firms have opted not to raise their first-year associate salaries, freezing the decade-long increase in pay at a peak of $125,000 and signaling that the economic squeeze is pinching the legal community pretty hard.
Law firms are making other changes, like dropping mandatory minimum bonuses or shifting associates to practices bringing in more money, such as litigation or bankruptcy. One firm is even asking employees to take time off without pay.
“The economy was overheated with all the high-tech companies going crazy, and the demand for legal services was tremendous,” said Sam Weiner, chairman of the associates committee and partner at Los Angeles-based Latham & Watkins. “In 1999 and the first part of 2000, law firms in general were struggling to hold onto associates they had and they wanted to attract new associates. One way to do that was with compensation.
“Then the economy skidded to a halt. And high-tech companies stopped hiring new people, and the growth stopped in the market. It doesn’t surprise me that the market didn’t have an increase this year.”
Latham & Watkins, like most L.A. firms, is keeping its first-year associate salary at $125,000 this year because it no longer has trouble finding associates and didn’t feel the increase was necessary to retain them, Weiner said.
Both Los Angeles-based Gibson Dunn & Crutcher LLP and Sheppard Mullin Richter & Hampton are not raising first-year associate salaries because there was no market demand to do so.
That’s in stark contrast to less than two years ago, when Silicon Valley law firm Gunderson Dettmer Stough Villeneuve Franklin & Hachigian led the nation in compensation with first-year associates making $125,000. First-year associates are typically a good indicator of changes in firm pay, which are usually based on how many years an associate or attorney has been with the firm.
Almost every major law firm followed Gunderson’s lead, trying to compete. The median base salary for first-year associates last year was $125,000, said Judy Collins, research director at NALP. This year, it’s about the same.
“I think they have reached a level where they may not go up. The market is very different from last year, when salary increases happened some in the middle of the season,” said Amy Mallow, assistant dean of career services at UCLA’s School of Law.
But a few firms haven’t risen their salaries.
Brobeck Phelger & Harrison LLP moved its starting associate pay to $135,000 earlier this year, and a few firms followed but not many.
Brobeck, primarily a high tech and litigation practice firm, had committed to share its lucrative business from last year with every person in the firm, said Brobeck firmwide managing partner James Burns in San Francisco, where the law firm is based.
“A lot of people didn’t follow that move, and, in candor, every firm has to make its own determination on what it can and should do economically,” he said.
That includes Brobeck, which was forced a few weeks ago to offer associates and partners three months without pay. The unusual move is a temporary quick-fix for Brobeck’s corporate and tech practices, which have suffered in the past several months.
Shifting to merit-based bonuses also are effective in reducing costs for law firms, said Paula Patton, executive director of NALP. The NALP figured that whereas half of law firms had merit-based bonuses last year, almost three-fourths had them this year.
“My understanding is several firms around the country have changed their compensation structure to tie how hard the associates work,” said Guy Halgren, chairman of the executive committee of Sheppard Mullin, which has not changed its combined hour-based and merit-based bonus structure. “Whereas before, there was money guaranteed, now it’s only paid if associates do a certain amount of work.”
At Latham & Watkins, guaranteed minimum bonuses were dropped to allocate more money toward merit-based bonuses, Weiner said. The firm instituted the guaranteed minimum bonuses three or four years ago when competition forced it to come up with additions in the compensation package, he said.