A second Am Law 200 firm is cutting associate salaries to adjust to the recession. Earlier this week Cleveland's Thompson Hine told its associates and other non-partner lawyers that it will impose an across-the-board $17,500 base salary reduction. Those lawyers will, however, be able to earn back some or all of that sum as a bonus if they bill at least 1,750 hours this year. Last week, Philadelphia's Wolf Block confirmed that it sliced associate pay by 10 percent. (News about both firms' salary cuts first appeared on the blog Above the Law.)
The AmLaw Daily talked to David Hooker, the managing partner of Thompson Hine, about this decision. "It was not an easy step for us," he says. "We recognize we're stepping out of a lockstep system that most firms have followed."
Management decided to adjust associate compensation while it was putting together a tight budget for 2009. "We had to make some conservative assumptions," Hooker says. "We came to the conclusion that we would have to restructure parts of the firm for '09."
The firm also announced layoffs last week, eliminating the jobs of 12 associates, five paralegals and 29 secretaries. Furthermore, it has pushed back the starting date for its incoming first-year class to January 2010.
Hooker says Thompson Hine had a "good year" in 2008: Profits per partner fell just 2 percent, to $500,000, and revenue at the 400-lawyer firm was up 4.5 percent to $196.5 million. But the firm expects 2009 to be worse. "Like most firms, in the last quarter we saw a decline in demand," Hooker explains.
Roughly 210 lawyers will be affected by the salary change. Associate salaries vary among Thompson Hine's eight offices: first-years in the New York office earn $145,000; those in Cleveland bring in $125,000; and Cincinnati first-years make $115,000, according to NALP data. The reduction represents a 12 percent decline for first-years in New York, and a 15 percent decline in Cincinnati for the entry-level lawyers.
Associates who bill at least 1,750 hours in 2009 will recoup $7,500 of the lost money; they'll get back the full $17,500 that's now being cut if they bill at least 1,900 hours. In both, the firm will count 50 hours of pro bono time toward the total.
Hooker and his partners expect the salary restructuring to save jobs at the firm. Also, Hooker stresses that partners expect to see their income fall in 2009. "We are budgeting for lower PPP this year. We're not doing this to keep partners at last year's income." Hooker adds that if the firm brings in more money than expected, associates could share in the wealth. "I explained that if we're fortunate [enough] to see a recovery, we will consider creating a special bonus pool beyond the one already described."
When asked how associates reacted to this news, which Hooker delivered by video conference, the managing partner says no one was happy, but, he adds, "Some people were relieved that the job cuts were limited to what they were." In coming weeks, the firm will hold additional meetings with associates to explain the firm's financial plan and share industry information.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
See if your law firm is on The Layoff List.