(BN) Law Firms Cut Junior-Lawyer Bonuses by as Much as 71 Percent
Started by marco_m
about 16 years ago
Posts: 2481
Member since: Dec 2008
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By Carlyn Kolker Dec. 21 (Bloomberg) -- Law firms including Cravath, Swaine & Moore LLP and Skadden, Arps, Slate, Meagher & Flom LLP cut year-end bonuses for first-year lawyers by as much as 71 percent, part of a bid to keep client costs down and ride out a recession that has forced structural changes in the industry. Bonuses dropped for first-year associates at many top-tier New York... [more]
By Carlyn Kolker
Dec. 21 (Bloomberg) -- Law firms including Cravath, Swaine
& Moore LLP and Skadden, Arps, Slate, Meagher & Flom LLP cut
year-end bonuses for first-year lawyers by as much as
71 percent, part of a bid to keep client costs down and ride out
a recession that has forced structural changes in the industry.
Bonuses dropped for first-year associates at many top-tier
New York firms while staying the same or increasing for more
experienced associates. Bonus reductions, along with overall pay
cuts, signal a diminished role for junior lawyers at the larger
U.S. firms, said consultant Bruce MacEwen.
The industrywide move to cut pay is “reflecting, frankly,
the low value clients place on junior associates,” MacEwen, who
is based in New York, said in a phone interview.
Facing a slowdown in work due to the financial crisis, law
firms fired thousands of associates this year and last, forced
new hires to delay starting dates and cut hours in exchange for
reduced salaries. Demand for legal services dropped 6.8 percent
in the first nine months of 2009 compared with last year,
according to Citi Private Bank, a unit of Citigroup Inc.
New York firms including Cleary Gottlieb Steen & Hamilton
LLP, Sullivan & Cromwell LLP, Cravath and Skadden Arps cut
seniority-based bonuses from $17,500 to $5,000, a 71 percent
drop, for first-year associates, according to the firms and
people familiar with their policies. The most experienced
associates get $30,000 or $35,000.
Other firms, such as San Francisco-based Morrison &
Foerster LLP, Reed Smith LLP in Pittsburgh and DLA Piper LLP in
Chicago, cut starting salaries for first-year associates from
$160,000 to as low as $130,000 this year. Firms in cities
including New York, Washington and San Francisco had adopted
$160,000 as the industry standard beginning in January 2007.
Future Senior Lawyers
Cleary’s managing partner, Mark Walker, said the cuts
aren’t a reflection on the value of young associates at his
firm. The best are traditionally offered partnerships after
spending eight years as salaried associates.
“The young lawyers today are the senior lawyers five years
from now,” Walker said.
Jeffrey Grossman, of the Legal Specialty Group at Wells
Fargo & Co., said U.S. law firms are cutting associate pay to
stanch their decline in profitability. Even partners are taking
home less, he said.
Today’s economic justification, however, may reap rewards
for law firm bottom lines tomorrow when revenue increases.
“It will be a future benefit,” said Grossman, based in
Charlotte, North Carolina. “It will change the cost structure
for future years.”
Client Pushback
An additional consideration in paring pay, the law firm
consultants said, is the need to address increased pushback from
corporate clients seeking reduced hourly billing rates.
“It’s a philosophical reaction to the fact that clients
are more demanding,” MacEwen said.
Rates for the least experienced attorneys typically range
from $250 to $350 an hour, he said, spurring some clients to
complain they are paying top dollar for the training of young
lawyers. The perception has existed for years and “bubbled to
the surface” during the recession, Grossman said.
Young lawyers have “a lot of potential,” said Brian
Cabrera, general counsel of Synopsys Inc., a maker of software
for chipmakers. “The question for the in-house lawyer is how
much of that potential has been realized.”
Cabrera said he recently asked a firm he wouldn’t identify
to pare its rate for some associates from $500 an hour to $400.
“I’m willing to recognize that I am partly subsidizing
associate training, but the firms need to pay for it, too,” he
said.
Reconfigured Compensation
The bigger firms -- which often move as a bloc in setting
pay -- still recognize they need to nurture top young lawyers.
As a result, Grossman said, some have reconfigured compensation
to reward high performance.
Orrick, Herrington & Sutcliffe LLP, based in San Francisco,
this month said it would eliminate bonuses for first year
associates, while keeping salaries the same. It instituted a new
system in which they get raises based on performance rather than
seniority.
The changes were made to align pay with performance and
client needs, said Orrick Chief Executive Officer Ralph Baxter.
While compensation has dropped for younger associates, the
most experienced associates have been spared, said Peter
Zeughauser, a law firm consultant at the Zeughauser Group, based
in Newport Beach, California.
“It’s harder to replace those people,” Zeughauser said.
“They are fully trained, and they are viewed as keepers.”
Sullivan & Cromwell this year said it’s giving some of its
most experienced associates, those who started at the firm in
2002, $5,000 more in bonuses than offered by Cravath and Cleary.
“We have always believed that generally the more senior
classes are working the hardest,” Sullivan & Cromwell Vice
Chairman Joseph Shenker said in an interview. “They are also
the most highly trained. It’s fair.”
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Response by lobster
about 16 years ago
Posts: 1147
Member since: May 2009
Law firm associates bill at pretty high rates, even very inexperienced associates so you can understand why clients wouldn't want to pay high rates for young lawyers with little experience and might turn to in-house counsel for some matters. I hadn't realized how many large law firms typically pay year-end bonuses to their associates. It doesn't seem to be an optimum time to have just graduated from law school. Hopefully things will improve shortly.
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Response by samadams
about 16 years ago
Posts: 592
Member since: Jul 2009
there are too many lawyers, huge problems ahead for the firms
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Response by somewhereelse
about 16 years ago
Posts: 7435
Member since: Oct 2009
and this on top of hiring fewer (and laying off) associates.
good thing lawyers don't buy apartments.
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Response by somewhereelse
about 16 years ago
Posts: 7435
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one interesting factor... even if the wall street rebound holds, law firms are kinda still screwed.
They feed off wall street, thats fairly well established.
But its one thing if Wall Street is cranking out money in M&A or IPOs - lawyers abound.
But if most of the profits are from trading - which is now the case - you sure don't need all those lawyers anymore (Except maybe if you need another bailout).
Long term, I wonder how bad this is going to screw all the big firms.
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Response by marco_m
about 16 years ago
Posts: 2481
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very interesting point. the paperwork involved in securitization was the cash cow for alot of firms..that biz is basically gone. bankruptcy / distressed specialists will do well for a while, but all the desks already have thier teams in place.
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Response by lobster
about 16 years ago
Posts: 1147
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Ont thing about going to law school which seems to differ from other graduate school degrees is that people always say that you can do other things with a law degree besides being an attorney. The only problem is that once you graduate, if you don't have contacts in another field or aren't able to make contacts in that field, you usually wind up working as an attorney at least in the beginning. I would think that people graduating now with MBA's might be having a difficult time as well.
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Response by somewhereelse
about 16 years ago
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"Ont thing about going to law school which seems to differ from other graduate school degrees is that people always say that you can do other things with a law degree besides being an attorney."
I've heard that, too... but I've had SO many lawyer friends who want to do something else and rarely get the opportunity. Maybe to be counsel somewhere else, but, yeah, essentially doing anything non-lawyery, and you're starting from the bottom, making those law school payments look huge.
that being said, in terms of the original statement... i think MBAs are MUCH more flexible than law degrees. Yes, MBA is business, but most of the jobs are "business".... now, is it valuable in of itself, well thats another debate... but I think a decent MBA opens more doors than a law degree.
I am sort of surprised by some of these comments. I am a real estate broker who works exclusively with buyers and I can tell you that, over the last year, most of my customers have been lawyers (especially lawyer/lawyer couples). The deal at the big lawfirms has always been (and continues to be -- with a few highly publicized exceptions), you don't make Wall Street money but you always have a job.
I have done a lot of deals this year with lawyer couples who collectively clear 500K-600K and have great job security. That kind of money isn't the kind of money that buys trophy apartments but you can still lively nicely in Manhattan with that kind of income as a baseline (lawyers don't actually count on their bonus money like streeters). As for my Wall Street customers who I have worked with in the past and expected to see again as they traded up, most of them either got pink slips or need to wait at least another year to recover their sense of job security.
By the way, coop boards agree with my above take on lawyers -- it's MUCH easier to pass lawyers than the "bonus bunch."
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Response by columbiacounty
about 16 years ago
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i think a lot of this has to do with age and seniority.
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Response by lobster
about 16 years ago
Posts: 1147
Member since: May 2009
rsm321, law is sometimes a difficult field to obtain job security. My huaband is a partner in a large law firm and has been there for many years. Many many lawyers in his firm have come and gone over the years- not all leaving willingly. With smaller firms, they tend to make fewer partners and you're often required to bring in quite a bit of business. If you can find the right situation, it can be very secure. If you can find your own niche, you can do very well. But I think you're correct when you say that working for Wall Street can be lucrative in the short run, but much less secure over time. Just a question, I wasn't aware that some RE brokers work only with buyers. Is this common?
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Response by samadams
about 16 years ago
Posts: 592
Member since: Jul 2009
law degree is becoming less valuable every day, too many lawyers not enough work!
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Response by aboutready
about 16 years ago
Posts: 16354
Member since: Oct 2007
rsm321, most equity partners and senior associates have held onto their jobs, although by no means all, and some firms had to get rid of quite a few of their more senior associates. largely, though, it was the service partners and the junior associates who were let go recently, and many firms also reduced salaries as well as bonuses, and/or eliminated associate lock-step compensation and advancement patterns.
but the ones who are truly in a pickle are the graduates of the classes of 2009-20??, my guess is 2011 at the earliest. there are just too many law school graduates to be absorbed, and i understand that there was no slowdown in enrollment for this year and applications for the next. hope springs eternal and all that.
I certainly understand that there have been some "modifications" in the legal world but it still seems insignificant when compared to the Wall Street situation. Frozen salaries (210K instead of 225K, for example) and decreased bonuses (20K instead of 30K) just doesn't quite make the same impact as a total 09 comp of 0 vs a total 08 comp of 700K. As for layoffs in the legal world, I think it depends on the start point: If you were laid off at a top firm, that's why there's tier 2 and tier 3 firms. If you are laid off from a tier 3 firm, then, yes, you have some problems ahead of you. As far as the upcoming situation with lawschool grads, I just don't know.
Lobster, I am one of very very very few brokers who do what I do but, yes, there are a few of us who specialize on the buyside of the deal -- I absolutely love it! I enjoy the hunt and the voyeristic aspect of my work -- something that the saleside doesn't afford.
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Response by lobster
about 16 years ago
Posts: 1147
Member since: May 2009
I didn't realize that some firms had let go of service partners- not so great. Also many firms hired fewer new associates to begin with. But the interesting thing is that when people talk about lawyers, they usually limit their conversation to the large firms and what they're doing when most law school graduates never have the opportunity to work for a large firm.
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Response by lobster
about 16 years ago
Posts: 1147
Member since: May 2009
rsm321, you're absolutely right. When my husband starts complaining about the salary situation in law firms now, I always tell him that between making $500,000/year and zero, I'll take the $500,000. They can cut your salary across the board in law firms, but going down to zero is a big big drop.
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Response by aboutready
about 16 years ago
Posts: 16354
Member since: Oct 2007
actually, at the senior associate level the bonuses are $30k instead of $75k. you're working with people who had already made their way through the system. where things will be painful is going forward. some of the big firms made fewer than half the number of partners that they have been the past few years. a number of the law firms are truly hurting in terms of profits per equity partner, both large and small. the impact will be felt. there are no positions in the tier 2 and tier 3 firms, and there are so many young associates available that firms can be very picky. some are telling headhunters that they will not interview anyone who has been laid off.
the other thing you might not be considering is that when total comp in a double (or even single) law family was a certain level when they bought, if they bought anywhere near the top of their comfort level, the combination of salary cuts and bonus reductions can be brutal. particularly if they have been expecting increases, and have been having children along the way. there isn't a tremendous amount of wiggle room for such a family, depending on what they buy. if one of them is laid off in this environment it can be a really ugly picture. not to minimize the plight of those in finance, but there were a LOT of layoffs at some of the law firms, it wasn't just salary reductions and bonuses halved. google latham if you want to read a horrible story.
the situation with the law school grads is simply awful.
lobster, kind of like how we focus on GS and the like when we talk about finance, and then only certain employees.
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Response by hfscomm1
about 16 years ago
Posts: 1590
Member since: Oct 2009
aboutready
about 4 hours ago
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the situation with the law school grads is simply awful.
well, not everyone is fortunate enough to get an MRS and sit at home.
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Response by alanhart
about 16 years ago
Posts: 12397
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hi hfscomm1
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Response by somewhereelse
about 16 years ago
Posts: 7435
Member since: Oct 2009
The majority of associates at a Cravath will never make partner and will be forced out. Sure, its "secure" if you happen to be the one who makes it, but for the others...
Law firm associates bill at pretty high rates, even very inexperienced associates so you can understand why clients wouldn't want to pay high rates for young lawyers with little experience and might turn to in-house counsel for some matters. I hadn't realized how many large law firms typically pay year-end bonuses to their associates. It doesn't seem to be an optimum time to have just graduated from law school. Hopefully things will improve shortly.
there are too many lawyers, huge problems ahead for the firms
and this on top of hiring fewer (and laying off) associates.
good thing lawyers don't buy apartments.
one interesting factor... even if the wall street rebound holds, law firms are kinda still screwed.
They feed off wall street, thats fairly well established.
But its one thing if Wall Street is cranking out money in M&A or IPOs - lawyers abound.
But if most of the profits are from trading - which is now the case - you sure don't need all those lawyers anymore (Except maybe if you need another bailout).
Long term, I wonder how bad this is going to screw all the big firms.
very interesting point. the paperwork involved in securitization was the cash cow for alot of firms..that biz is basically gone. bankruptcy / distressed specialists will do well for a while, but all the desks already have thier teams in place.
Ont thing about going to law school which seems to differ from other graduate school degrees is that people always say that you can do other things with a law degree besides being an attorney. The only problem is that once you graduate, if you don't have contacts in another field or aren't able to make contacts in that field, you usually wind up working as an attorney at least in the beginning. I would think that people graduating now with MBA's might be having a difficult time as well.
"Ont thing about going to law school which seems to differ from other graduate school degrees is that people always say that you can do other things with a law degree besides being an attorney."
I've heard that, too... but I've had SO many lawyer friends who want to do something else and rarely get the opportunity. Maybe to be counsel somewhere else, but, yeah, essentially doing anything non-lawyery, and you're starting from the bottom, making those law school payments look huge.
that being said, in terms of the original statement... i think MBAs are MUCH more flexible than law degrees. Yes, MBA is business, but most of the jobs are "business".... now, is it valuable in of itself, well thats another debate... but I think a decent MBA opens more doors than a law degree.
I am sort of surprised by some of these comments. I am a real estate broker who works exclusively with buyers and I can tell you that, over the last year, most of my customers have been lawyers (especially lawyer/lawyer couples). The deal at the big lawfirms has always been (and continues to be -- with a few highly publicized exceptions), you don't make Wall Street money but you always have a job.
I have done a lot of deals this year with lawyer couples who collectively clear 500K-600K and have great job security. That kind of money isn't the kind of money that buys trophy apartments but you can still lively nicely in Manhattan with that kind of income as a baseline (lawyers don't actually count on their bonus money like streeters). As for my Wall Street customers who I have worked with in the past and expected to see again as they traded up, most of them either got pink slips or need to wait at least another year to recover their sense of job security.
By the way, coop boards agree with my above take on lawyers -- it's MUCH easier to pass lawyers than the "bonus bunch."
i think a lot of this has to do with age and seniority.
rsm321, law is sometimes a difficult field to obtain job security. My huaband is a partner in a large law firm and has been there for many years. Many many lawyers in his firm have come and gone over the years- not all leaving willingly. With smaller firms, they tend to make fewer partners and you're often required to bring in quite a bit of business. If you can find the right situation, it can be very secure. If you can find your own niche, you can do very well. But I think you're correct when you say that working for Wall Street can be lucrative in the short run, but much less secure over time. Just a question, I wasn't aware that some RE brokers work only with buyers. Is this common?
law degree is becoming less valuable every day, too many lawyers not enough work!
rsm321, most equity partners and senior associates have held onto their jobs, although by no means all, and some firms had to get rid of quite a few of their more senior associates. largely, though, it was the service partners and the junior associates who were let go recently, and many firms also reduced salaries as well as bonuses, and/or eliminated associate lock-step compensation and advancement patterns.
but the ones who are truly in a pickle are the graduates of the classes of 2009-20??, my guess is 2011 at the earliest. there are just too many law school graduates to be absorbed, and i understand that there was no slowdown in enrollment for this year and applications for the next. hope springs eternal and all that.
I certainly understand that there have been some "modifications" in the legal world but it still seems insignificant when compared to the Wall Street situation. Frozen salaries (210K instead of 225K, for example) and decreased bonuses (20K instead of 30K) just doesn't quite make the same impact as a total 09 comp of 0 vs a total 08 comp of 700K. As for layoffs in the legal world, I think it depends on the start point: If you were laid off at a top firm, that's why there's tier 2 and tier 3 firms. If you are laid off from a tier 3 firm, then, yes, you have some problems ahead of you. As far as the upcoming situation with lawschool grads, I just don't know.
Lobster, I am one of very very very few brokers who do what I do but, yes, there are a few of us who specialize on the buyside of the deal -- I absolutely love it! I enjoy the hunt and the voyeristic aspect of my work -- something that the saleside doesn't afford.
I didn't realize that some firms had let go of service partners- not so great. Also many firms hired fewer new associates to begin with. But the interesting thing is that when people talk about lawyers, they usually limit their conversation to the large firms and what they're doing when most law school graduates never have the opportunity to work for a large firm.
rsm321, you're absolutely right. When my husband starts complaining about the salary situation in law firms now, I always tell him that between making $500,000/year and zero, I'll take the $500,000. They can cut your salary across the board in law firms, but going down to zero is a big big drop.
actually, at the senior associate level the bonuses are $30k instead of $75k. you're working with people who had already made their way through the system. where things will be painful is going forward. some of the big firms made fewer than half the number of partners that they have been the past few years. a number of the law firms are truly hurting in terms of profits per equity partner, both large and small. the impact will be felt. there are no positions in the tier 2 and tier 3 firms, and there are so many young associates available that firms can be very picky. some are telling headhunters that they will not interview anyone who has been laid off.
the other thing you might not be considering is that when total comp in a double (or even single) law family was a certain level when they bought, if they bought anywhere near the top of their comfort level, the combination of salary cuts and bonus reductions can be brutal. particularly if they have been expecting increases, and have been having children along the way. there isn't a tremendous amount of wiggle room for such a family, depending on what they buy. if one of them is laid off in this environment it can be a really ugly picture. not to minimize the plight of those in finance, but there were a LOT of layoffs at some of the law firms, it wasn't just salary reductions and bonuses halved. google latham if you want to read a horrible story.
the situation with the law school grads is simply awful.
lobster, kind of like how we focus on GS and the like when we talk about finance, and then only certain employees.
aboutready
about 4 hours ago
ignore this person
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the situation with the law school grads is simply awful.
well, not everyone is fortunate enough to get an MRS and sit at home.
hi hfscomm1
The majority of associates at a Cravath will never make partner and will be forced out. Sure, its "secure" if you happen to be the one who makes it, but for the others...
and you know the pyramid is getting worse...