DLA Piper to Cut Most Partners' Pay

Amanda Royal

The Recorder

DLA Piper informed all of its U.S. partners on Friday that it will reduce pay for most of them by 11.5 percent in 2009, while strong performers will get more money.

The firm projects revenue will decline 7 percent in 2009 and profits will drop 6 percent, said U.S. Managing Partner J. Terence O'Malley in an interview with The Recorder. The move applies only to its U.S. operations, which count 1,380 lawyers.

"We are very pleased with how we are performing relative to the competition, but it's a tough economic environment," O'Malley said.

"We are conservatively budgeting this year to be a down year."

DLA's pay cut is part of an annual budget projection process and is not related to the firm's 2008 results. The firm ended 2008 with zero debt and will end 2009 with zero debt, said O'Malley.

As opposed to 2008, when the economic downturn was not full blown until the fourth quarter, firms are preparing for four quarters of dried-up demand in 2009.

Legal consultants say most firms expect profits and revenues to drop this year as a result.

For 2008, DLA reported revenue per lawyer was up 2.8 percent, with profits per equity partner up 6.4 percent, to $1.3 million.

In November, the firm said it would ask its 275 income partners to contribute capital.

O'Malley said the move was a way for it to reduce its reliance on banks. Its main lender was Wachovia, which was absorbed by Wells Fargo in October.

"The lesson we learned from watching Wall Street was don't be dependent on your banks, because they aren't always going to be there. Our decision was to have less debt and be less exposed to the vagaries of the credit market," O'Malley said.

Many firms rely on some revolving credit throughout the year because collections are heavily weighted toward the end of the year. Some firms only tap into their credit lines for a few days or weeks at a time, once or twice a year.

DLA is the second firm to acknowledge reductions in partner payouts. Dewey & LeBoeuf said last week it had cut partner compensation for one-fifth of its 350 partners over the last 15 months, some by as much as 80 percent, to weed out low performers.

DLA's move is neither surprising nor unusual, said consultant Richard Gary, a former chairman of the Thelen firm.

"There is a consensus that revenues will be down in 2009," said Gary, who does not count DLA as a client.

"The reason is that lawyer head count will be lower. Most firms are laying off associates and, in probably a quieter way, partners as well, and therefore with head counts down, revenues will inevitably be lower. There are fewer people producing billable hours."

DLA cut 80 associates and 100 staff from its U.S. offices in February.

Gary also noted that stagnant billing rates and collection problems will also likely place downward pressure on revenue and mean pay cuts for partners at many firms.