It was a wild ride for associates at big law firms during the first decade of the century. In the end, most everyone was a little queasy from the experience.
Between 2000 and 2009, law firms doled out jaw-dropping bonuses, lavished benefits like never before and hiked first-year salaries to a point that drew the envy of federal judges. The decade also featured mass job cuts, pay reductions and a decided shift in power for recent law graduates, many of whom, at the decade's conclusion, were clamoring for even part-time work at living-wage levels.
The manic-depressive era provided tough supply-and-demand lessons for law firms, some of which promise to endure.
The decade began with a flourish. In 2000, a strong economy, fueled by a hot stock market, a still-thriving technology sector and a federal budget surplus of nearly $240 billion, meant booming business for law firms and big raises for associates. Launching the salary-war salvo that year was Menlo Park, Calif.-based Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, which in February raised starting pay by almost 50 percent to $145,000.
The move set off a bicoastal frenzy, with law firms raising base salaries for first-year associates from $110,000 to $125,000. At the same time, major law firms handed out year-end bonuses of $40,000 for first-year associates. Orrick, Herrington & Sutcliffe announced bonuses that meant first-year associates could pull in $160,000. Ill-fated Heller Ehrman brayed that its entry-level associates in New York had the potential to make $150,000, including bonuses. Also joining the trend were a number of New York firms and Brobeck, Phleger & Harrison -- a San Francisco firm that folded in 2003 but one that perhaps best exemplified frantic growth during the tech boom. Some firms reported that they were turning away business because they lacked the attorney-power to handle it.
PING PONG IN THE BREAK ROOM
Vinson & Elkins attorney Jonathan Leatherberry was a first-year associate in 2000. It was a heady time to graduate from law school, he said. He received his juris doctor from Southern Methodist University Dedman School of Law.
The attitude among graduates "was like, 'I can go anywhere, and you should make me happy by letting me wear chinos and a golf shirt and having a ping-pong table in the break room,' " said Leatherberry, who will become a partner in the firm's Dallas office in January.
It was in 2000 that law firms began "nationalizing" associate compensation, said Paula Alvary, a principal of Hoffman Alvary & Co., a consultancy in Newton, Mass. Because of a shortage of qualified associates and the infiltration of New York and West Coast firms into regional markets, firms began homogenizing pay across their offices.
"They needed high-caliber associates and they had to inspire somebody to come to Cincinnati instead of Chicago," she said. It was a move away from compensating associates based on the individual markets of their offices' locations, and it was a strain on firms whose big-city practices weren't strong enough to cover the geographic differential.
The following year, the economy was a much different story. The effects of the tech slowdown were spreading. In February, the former Dewey Ballantine cut loose about 12 associates in New York. The decision followed reductions by Weil, Gotshal & Manges and Stroock & Stroock & Lavan, which said that the departures were a result of annual reviews. Industry consultants warned of leaner times ahead. "There are a number of firms that ought to be considering their survival strategies," consultant Peter Zeughauser said at the end of 2000. "For a lot of firms that took a hit in their economics to keep up with associate salaries, that's going to cause problems."
It did. An economy that was slowing during the first half of the year abruptly stalled following the attacks of Sept. 11, 2001. In October, Shearman & Sterling said it expected to winnow up to 10 percent of its associates, and the following month Holland & Knight rescinded offers for summer associates. By year's end, top firms on both coasts were telling associates that they would not get year-end bonuses. By early 2002, Brobeck had dropped 50 associates, mainly in its California offices and primarily from its business and technology practices, which gave it about 40 percent fewer associates than a year earlier. In addition, many big firms scaled back hiring for their 2003 summer classes and were left needing more talent once the economy improved.
"The [on-campus recruiting] engine was becoming obsolete," Alvary said.