Reed Smith on Wednesday joined a small but growing group of large law firms that have decided to cut associate salaries as one way to adjust to the economic downturn.
The firm, as first reported on legal blog Above the Law, said in a memo Wednesday morning that it would cut all existing U.S. associates' salaries by 10 percent effective July 1. The memo, which the firm sent to The Legal Intelligencer, said offices in Europe and the Middle East will have only salary freezes and the offices in China are unaffected.
The starting salary for incoming first-year associates, all of whose start dates have been deferred to January 2010, has not been decided, but the firm said it would be about 10 percent less than current levels. Reed Smith pays $145,000 to first-years in Philadelphia and $135,000 in Pittsburgh. The same salary cut is expected for newly qualified lawyers in the firm's London office.
The associate bonus system will remain intact for 2009.
Eugene Tillman, Reed Smith's firmwide director of legal personnel, said the firm moved away from a lockstep compensation model years ago and has focused instead on a merit-based system. The firm felt this "reset in compensation" was appropriate, he said, but it still has the ability to compensate deserving associates through bonuses. Tillman said he would expect a decision on starting salaries for incoming first-years to be made in the next two to three months.
Associates aren't the only ones seeing a change in their compensation.
"Everyone's expectations with respect to their compensation have been affected with the change to the business environment," Tillman said. "So partners are not immune from the impact of the business cycle."
According to the memo, Reed Smith said it has adopted many changes to its business model in the face of the recession, and that has included lower compensation levels for partners. Aside from compensation cuts and deferred start dates, Reed Smith has shortened its summer program by three weeks and laid off more than 200 attorneys and staff since the economy took a turn for the worse.
Tillman said the firm's decision to cut salaries by 10 percent was based on a combination of what it felt made sense for the firm and where the market was going.
One firm that instituted 20 percent associate salary cuts last week for certain associates received backlash that caused the firm to cut that decrease in half.
DLA Piper said Tuesday night that it would cut all associates' salaries by 10 percent as opposed to the initial 20 percent cut it announced for some associates last week, according to a report by The Legal Intelligencer's sister publication The National Law Journal. Initially, first-years' salaries were to be cut by 10 percent with other associate levels facing varying salary cuts, the paper said.
The memo stated that many conversations with partners and associates prompted the firm to make the change, The National Law Journal said.
While most firms were hesitant to be the first to cut starting salaries or salaries for associates at any level, many legal community stakeholders view the step as a move in the right direction.
"Certainly I don't think it would hurt the market to lower the starting salaries and avoid what's happening right now," said Amy Montemarano, Drexel University Earle Mack School of Law's assistant dean of career and professional development, last month in response to deferrals of first-year associates.
Montemarano said she didn't think it would hurt the market to spread salaries out a little bit better because of the huge salary disparity between a public interest job, for example, and a large law firm gig causes a lot of students to struggle with making a decision on where to start their legal careers.
Drinker Biddle & Reath's recent decision to cut first-year associate salaries from $145,000 to $105,000 for the first six months in order to focus on training has been met with much praise from the law school and corporate counsel communities.