Nixon Peabody and Seyfarth Shaw last week joined a growing number of firms that are betting associates will be willing to work for less in the coming years.
Nixon Peabody said last week it will pay incoming associates $145,000 in major financial centers, down from $160,000, with similar pay decreases in other parts of the country. It also reduced base pay for associates already working at the firm.
Seyfarth Shaw said that, in addition to laying off 50 attorneys and staff on Friday, it has cut salaries for "segments" of its associates and income partners by 5 percent to 20 percent.
About a dozen large and midsize firms have cut associate salaries in some form or fashion, including top 10 Am Law firms Greenberg Traurig and Baker & McKenzie. Squire, Sanders & Dempsey has cut current associate salaries 10 percent, but has not said what incoming associates will make.
Those firms each employ more than 60 associates in California.
"I think you are seeing the beginning of a broad movement," said consultant Peter Zeughauser. "If it comes from the bottom up, it's going to happen more slowly, and that's what's happening. And it probably won't be as pervasive."
Many midsize firms, including California-based Allen Matkins Leck Gamble Mallory & Natsis; Cleveland's Thompson Hine; Washington, D.C.-based Hogan & Hartson; and Richmond, Va.-based McGuireWoods, also have adjusted associate salaries. Seattle's Davis Wright Tremaine has cut associate salaries 5 percent. Allen Matkins and Hogan & Hartson said their pay reductions saved jobs.
Associate salaries have been a hot topic in the legal industry for the past few months. It's clear firms are hearing from their consultants that they are paying associates too much, but many firms are reluctant to lower salaries for fear that they may not be able to recruit top talent.
"That is the balancing act, whether you will retain the ability to attract the best talent," said recruiter Stacy Miller of Miller, Sabino & Lee. But, she said, graduating law students aren't going to be picky in this market.
"At the end of the day, I don't think that many associates are going to return their bar stipend and decline their offers. I don't think it's going to happen, and firms realize that," Miller said.
While most of the firms that have cut salaries are East Coast firms -- none New York-based -- layoffs were disproportionately conducted by West Coast firms, though it's not clear that more people were actually let go on the West Coast. Most firms declined to break down the layoffs by office.
Miller and Zeughauser said if that trend holds out, it might be due to differences in business culture between the two coasts.
"Failure in New York is a big, black, dark cloud and it's failure," Miller said. "Whereas in Silicon Valley people almost brag about, 'Well, I did three startups and the fourth one finally took off.' Try and try again, and if you fail, just get back up and try again. It's a very Western kind of mindset."
"The New York firms culturally can't see their way through those layoffs, but California firms can," Zeughauser said. As far as salary cuts, he said of California firms: "Sure, they are much more likely to do it than the New York firms. New York firms are going to do it last, if they ever do it. I don't think they'll do it."
Greenberg Traurig's change came earlier this month.
"We have made some changes in our summer and first-year associate base salary structures in certain offices and practices, while we have not made changes in others. Base salaries for our first-year associates have generally been kept at or within 10 percent of the prior levels," a firm statement said.
Baker & McKenzie's salary cuts leaked out two weeks ago, but were not firmwide or specific to associates. When asked to confirm whether associate pay was cut, the firm provided a statement: "In select instances, we have reduced some salaries to preserve jobs." The firm declined to comment further when asked to specify whether the cuts applied to associates, partners or staff.
Orrick, Herrington & Sutcliffe, while it has not said anything about salary cuts, is planning on scrapping the whole lockstep associate compensation advancement system this summer and move toward one that is based more on merit.