Latham & Watkins Chairman Robert Dell
image: Christine Jegan
FROM THE UPCOMING ISSUE
As associate pay freezes spread, a cold winter gets colder
December 22, 2008
It began with law firms sending their idle associates packing.
Then firm leaders announced associate bonuses that were noticeably slimmer than those of the previous year.
Now it appears that associate pay freezes are the latest unwelcome byproduct of the economic downturn and the resulting decline in legal work.
Two firms thus far have announced pay changes for 2009 that are likely to displease associates, and the pay raise picture looks murky at a number of other firms.
Latham & Watkins announced last week that it will freeze associates salaries for the coming year, meaning that first- and second-year associates will continue to receive base salaries of $160,000. Associates from other classes also will receive the same base salary in 2009 that they did in 2008.
"We are modifying associate compensation as part of a prudent business strategy in the face of challenging economic times," said Latham chairman and managing partner Robert Dell in a statement to Legal Times, an affiliate of The National Law Journal. Dell added that he is confident in the firm's business strategy.
Squire, Sanders & Dempsey also has announced changes in associate compensation, although the extent of the change is not clear.
"In response to unprecedented situations facing legal markets throughout the world, the firm has decided to maintain U.S. associate compensation for 2009 at 2008 levels," wrote partner Tim Sheeran in a letter to U.S. associates.
A Squire Sanders spokeswoman declined to clarify the announcement. It could mean that associates will receive the same base salary in 2009 as in 2008.
Interpreted a different way, the announcement could mean that the firm is simply keeping its associate pay scale the same, and that associates will move up to the next pay level based on the year they started at the firm.
Associate pay levels have been on a steady climb in recent years, with New York firm leading the charge. That upward trend has led to more than a little grumbling among partners and law firm clients.
Legal gossip blog Above the Law has reported that Reed Smith, which gives raises on an individual basis, isn't upping the base salary of many associates in 2009.
Michael J. Anderson, a consultant with Edge International, said that pay freezes aren't a new phenomenon. He expects to see more firms take that step in the coming weeks.
"We will absolutely see more, unless the economy recovers all of the sudden," Anderson said. "We saw the same knee-jerk reaction when the tech boom ended, primarily in California."
Some firms have put off making a decision about associate raises for 2009, in part to give them a better sense of how their firms will be affected by the economy.
Bryan Cave told associates in late November that it was delaying raises by three months. Raise considerations will now happen at the beginning of April, instead of January. The firm called the delay "prudent" and cited the volatility of the economy and uncertainty in the markets.
McDermott Will & Emery told associates earlier this month that it would not announce any decisions about pay raises until March, while Womble Carlyle Sandridge & Rice recently informed attorneys and staff that it will not raise pay at the beginning of the year, and that the firm will reassess that decision midway through 2009.
Anderson said that freezing pay is a more compassionate way for firms to address shrinking profits than layoffs, although pay freezes may just be one last step before firms cut attorneys.
However, pay freezes aren't necessarily the best way for firms to address their financial problems.
"Pay freezes are a fairly typical reaction," Anderson said. "What I seldom see is firms that focus on their unproductive partners and practice areas, and really look at what they can do about those. Partners don't like to look at each other."
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