Sonnenschein's Elliott I. Portnoy
Sonnenschein announces associate pay cuts, performance-based compensation system
May 21, 2009
Sonnenschein, Nath & Rosenthal next month will cut associate salaries as part of a broader effort to revamp its compensation, staffing, training and mentoring programs for the junior lawyers.
The law firm will cut associate pay on June 1, reducing pay for first-year associates in big cities to $145,000 annually from $160,000, and next year will more broadly revamp associate compensation toward a performance-based system, Chairman Elliott Portnoy said in a memo on Thursday to all associates. The cuts will range between 10% and 15%, depending on the associate. At the same time, the firm will create a new associate-partner committee to flesh out new associate programs.
"It's an effort to redefine our relationship with our associates and to bring the law firm associate model into a new era with benefits for all of our stakeholders, starting with our associates, but also for our clients," Portnoy said in an interview.
As part of the first phase of the changes, associates this year will be able to make up the pay cut difference or earn more than their previous pay under a merit-based bonus program that factors in client development, marketing and pro bono contributions, among other things, and is no longer contingent on billable hour requirements. The bonuses will be paid in January 2010. Under a new performance-based system in phase two next year, "variable compensation" will represent a higher proportion of total pay, the memo said.
With the onset of the recession, the decline in legal work in some practice areas and the tightening of corporate purse strings, law firms across the country have seen a drop in revenue. Firms have responded by trying to cut costs, eliminating lawyer and staff jobs and curtailing spending in other areas, such as summer programs. Most firms now can't afford the higher associate pay levels they implemented in recent years, said Joel Henning, a consultant for Hildebrandt International in Chicago.
The increase in associate pay to $160,000 had "put an enormous dent in the profits of law firms," Henning said. "It didn't make any sense for the firms, given the nature of their client base, and it just absolutely sent clients up the wall."
Sonnenschein last year dismissed 63 attorneys, including 49 associates, but this year has hired 140 new lawyers, about 100 from the collapsing Thacher, Proffitt & Wood. The firm also reduced its summer program this year to 17 associates, from about 35 last year. The firm told 20 of its 29 first-year associates slated to arrive this year that their start date would be postponed to as late as January 2010 and told nine they wouldn't be needed until January 2011.
Some firms, including McGuireWoods and DLA Piper, have also reduced associate salaries. Now, other firms will feel more comfortable following suit, said Art Gunther, an attorney who leads the Chicago recruiting firm called the Gunther Group.
"Firms have more leeway to do things, like cutting compensation, than they did a year or two ago," Gunther said. "Associates are more understanding of the financial conditions of their firms and realize that a pay cut is far better than being let go."
Portnoy said that the firm's associate committee told him in March that there was a consensus that associates would rather reduce salaries than eliminate more jobs. The firm, which has roots in Chicago, has about 800 lawyers in 14 U.S. and European offices.
Sonnenschein started mulling the associate changes in 2007, not long after Portnoy predicted that the market-driven associate salary increases would ultimately be detrimental, Portnoy said. During the past 18 months, he's heard from clients on the issue, he said.
"They talk very openly about their concerns regarding how the increase in associate salaries in recent years has caused increases in rates and inefficiencies," Portnoy said. "In particular, they're concerned that the incentives are all wrong."
The merit-based bonus program that takes effect this year will have an expanded bonus pool. Associates who log 2,000 billable hours, including approved pro bono hours, will earn back 50% of their pay cut as a January 2010 bonus, while associates who reach 2,200 billable hours will earn back the entire pay cut. Separately, associates will also be able to earn bonus money by working more efficiently, contributing to the firm's marketing efforts, snagging new clients and working on pro bono projects, among other things to be evaluated on a subjective basis.
In 2010, the firm plans to roll out a "performance-based" compensation system focused on "personal skills development and client service, with variable compensation representing a higher proportion of total associate compensation," the memo said. The firm's new associate-partner committee will, during the next 18 months, help devise and implement the firm's new approach to mentoring, training, staffing and merit-based compensation. Details of the new mentoring, training and staffing programs aren't yet available, the firm said.
Most Popular Headlines
- Top ABA staffers exit amid reorganization
- Daschle departing Alston for DLA Piper
- Unanimous 7th Circuit finds mezuzah removal worth a lawsuit
- Employers unsure about medical marijuana
- Obama shakes up counsel's office
- The 2009 NLJ 250
- New approaches to law firm recruitment
- Hasan case to test military justice system
- 'He had the ability to do anything'
- No quiet time for new justice
