Caught in Real Estate Downturn, Firm Cuts Attorneys' Pay by 12 Percent

Jordana Mishory

Daily Business Review

Attorneys at Becker & Poliakoff are being hit with a 12 percent pay cut for the foreseeable future to help the real estate-dominated firm deal with a drop in profitability and delays in collections. Becker & Poliakoff is the first major South Florida firm to turn to its lawyers to make cuts to help it deal with the economic slowdown and real estate downturn.

Other firms have trimmed staff jobs, including paralegals and secretaries, and cut back on other expenses to help cope with the economic landscape.

Alan Becker, the firm's managing shareholder, informed attorneys and support staff about the pay deferment plan via podcast Wednesday. The cut took effect Thursday and affects only lawyers. No layoffs are expected. The Fort Lauderdale-based firm specializing in real estate, construction and government law brought in $60 million in revenue last year, but clients failed to pay $2.5 million, or about 4 percent of total billings, Becker said, adding that it was the firm's best revenue year ever. "Look at the economy out there," Becker said. "We have a tremendous number of real estate developer clients, and many are hanging on by their fingertips. So what am I supposed to do? Tell them I'm going to cut them off instead of trying to work with them?"

Nearly 70 percent of the firm's expenses are staff-related, he said. He could not cut spending on rent or insurance, so his staff bore the brunt of the fallout from the downturn. He said he knew accounts receivable would be slow, so the only responsible thing would be to get expenditures in line with revenue. "It's simple math: If X dollars come in, you can't pay more than X dollars out," Becker said. "If you want to be conservative and cut costs, there's not a whole lot of places you can do it -- where 70 percent of your expenses is people -- except people."

A managing partner speaking on condition of anonymity said Becker's math does not add up. "In order to cut all lawyers' compensation by 12 percent the problem must be bigger than a 4 percent reduction in revenue," the managing partner said. "I believe he's either off more now or afraid he'll be off more later."

The managing partner also said that it is highly unusual to cut pay to associates when the firm's profitability is suffering.

Becker said the pay cut would be lifted if clients begin paying again, provided the attorneys are still with the firm. He said he expects to pay the money retroactively to attorneys who stay with the firm.

"I support the people who support us," Becker said. He is hopeful the firm will be able to reimburse its attorneys this year. This is not the first time the firm has deferred pay while waiting for clients to pay, and he said the firm has always been able to pay its deferrals. Neil Schiller, an associate in government law and lobbying at the firm's Fort Lauderdale office, said he is glad the firm decided to defer salaries rather than impose layoffs. "This is a family," Schiller said. "I would rather take a temporary deferral than see a family member leave permanently."

Schiller said he and his colleagues are extremely busy. It's just that clients have been slow to pay their bills due to the economic downturn. Several other attorneys at the firm either declined comment or did not return a call for comment before deadline. The Becker & Poliakoff cutback strategy is uncommon. When firms hit a rough patch they typically hold back partner compensation and borrow money -- unless the problem is particularly acute. It is also rare for a firm to turn to associates to help keep the firm afloat financially. Typically that is a burden faced by partners who share in a firm's financial ups and downs.

The managing partner said the downturn has led firms to be more vigilant when assessing which clients to take. He said it's important to ensure that both new clients and existing ones pay bills. To make sure accounts receivable stay in line with projections, the managing partner said his firm makes sure that bills go out promptly, there is follow-up with clients, and lawyers get appropriate retainers. Deferring salaries is not a common method to battle a down economy, the managing partner said. "Law firms generally have enough cash flow to be able to cover their salaries even in a down economy," he said.

Employment lawyer Suzanne Bogdan, a partner at Fisher & Phillips in Fort Lauderdale, called Becker & Poliakoff's approach a "creative way to try to keep businesses running at a level they need to run while they give clients a little bit of time to catch up on payments."

The economic environment has led all businesses on a quest to find creative means to maintain the optimum number of employees while cutting costs, she said. Some businesses are having employees squeeze a 40-hour work week into four days to cut operating costs one day a week. Others are having people work part time in slower months. Bogdan emphasized the importance of management keeping up morale through constant communications. Becker attributed the larger accounts receivable balance to the economic slowdown, which has hit condo associations and developers hard. He conceded he was slow to notice the impact of the downturn because revenue was growing. Before the cut was announced, equity partners received large disbursements, and other partners and associates received large bonuses and salary increases, he said. Becker said his clients were fantastic during good economic times, so he said he would prefer to help them resolve their problems now that they're suffering.

The firm has 12 offices in Florida as well as locations in New York and Prague, the Czech Republic. Its Web site lists 128 lawyers. During the past month, Becker said he visited many of the firm's Florida offices and explained the firm's problem with collections. He reminded the attorneys to work hard to get clients to pay their bills. The firm's management weighed all options before deciding on the pay holdback for professionals, Becker said. One option was to cut areas bearing the brunt of the downturn, but he said that was quickly rejected because everyone benefited when the market was "red hot." Another option was to roll back all salaries to 2007 levels, but that would penalize the people who were productive last year.

He decided to make the deferral immediate to address the firm's cash flow shortage more quickly and reasoned that giving a longer notice wouldn't have made anyone any happier about it. He decided to do a podcast because he thought e-mails or memos were too cold and he would not be able to tell people in each office personally. The news comes just weeks before the firm's annual retreat. Becker said the emphasis is on education, but he is sure the salary deferral will be a major issue and he plans to answer any questions that his employees have. "How do you avoid it?" Becker asked.