Reed Smith has cut starting salaries by about 20 percent for the 51 first-year associates set to start in January and, in turn, is cutting their billing rates by the same margin.
The decision comes just a few weeks after the firm did away with associate classes and instead instituted three levels of associate tiers that will work within a competency-based advancement model.
The near 20 percent cuts to salaries, which only affect U.S. offices, are from the high the firm had been paying in 2008 and are market dependent. Billing rates will be cut by an even 20 percent.
In New York, Chicago, California and Washington, D.C., for example, associates will move from $160,000 down to $130,000. In Pittsburgh, starting salaries will go from a 2008 high of $135,000 down to $110,000 and in Philadelphia that number will move from $145,000 down to about $117,500.
Reed Smith Global Managing Partner Gregory B. Jordan said the moves were in response to a very clear message from clients and the marketplace.
"As part of the reset that's going on in the business world, clients are expecting their law firms to drive their costs down," Jordan said.
One of the biggest areas of friction was starting salaries for entry-level associates, he said. And it's really the rates that most directly affect cost, so the firm decided to take a swing at both, he said.
As part of the reduction in salary and billing rates, first-year associates will also see a reduction in their billable hour targets from 1,900 to 1,700 hours. That was done in part, Jordan said, to ensure they could take advantage of the new training programs that go along with the competency-based advancement model.
The salary and billing rate cuts affected only the U.S. associates. The firm said those rates in its European, Middle Eastern and Asian offices will be decided in 2010. Though the firm has said compensation for other associates will be tied to the new competency-advancement model, Jordan said decisions on compensation for the rest of the associates won't be made until 2010, after they are evaluated.
"Our new U.S. starting salaries represent a reasonable and appropriate reset based on today's economic environment," Eugene Tillman, the firm's global head of legal personnel, said in a statement. "We believe this will put Reed Smith in a stronger business position in a changing marketplace while still providing fair compensation to our new associates."
Jordan said the 51 incoming associates, who were deferred until January 2010, are spread across the firm's U.S. offices. There are six in Philadelphia and eight in Pittsburgh.