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Grappling with a double-digit decline in revenues, Venture Law Group has slashed base salaries for associates and will attempt to make up the slack by giving junior lawyers a greater share of the firm’s profits. The Menlo Park, Calif.-based corporate boutique reduced first-year salaries to $100,000 from $125,000 and cut base pay for third-years to $115,000 from $150,000. At the same time, VLG gave associates more points, which are shares in the firm’s profits. But associates are dubious about the firm’s profitability given the dismal economy. Though average associate salaries at Silicon Valley law firms have ballooned 55 percent since 1998, firms have been loath to cut pay. And while they say they are considering salary freezes, managers at competing firms aren’t ready to follow VLG’s lead. “I don’t think that’s a likely scenario for our firm,” said Marina Park, firmwide managing partner at San Francisco’s Pillsbury Winthrop. “There are too many firms who wouldn’t be in a position to reduce the base unless the whole market moves in that direction.” Donald Keller Jr., a VLG partner and firm manager, said the firm wasn’t trying to lead a movement among Valley firms to roll back associate pay. “We’re not trying to be gutsy here,” Keller said. “We’re trying to do the right thing by our business.” Keller said the move was designed to shore up profitability as the firm struggles with a 15 percent decline in revenue. Last year, VLG grossed $64 million with a net income of roughly $19 million. Average profits per partner topped $738,000. Since its inception in 1993, VLG has awarded every employee a share of the firm’s operating profits. Currently, first-year VLG associates earn 5,800 points. On Jan. 1, when the new salaries and point system takes effect, first-years will have 13,500 points, eKeller said. The firm refused to provide further details on changes to the base salaries or point allocations. However, one associate at the firm, who spoke on the condition of anonymity, said third-year VLG associates — who now have 8,000 points — will see the number rise to 19,000. The lawyer also said that last year, one point was worth about $4. It’s no secret that corporate practices are hurting and that the corporate boutiques like VLG are feeling the pain even more. Firms have reacted to the fall-off in business by cutting costs, including laying off associates. Even before the pay cut, VLG had gone a step further than most firms by telling its incoming first-year class that itsstart date would be delayed indefinitely. But when it comes to associate salaries, only Gray Cary Ware & Freidenrich has made any decisions. The firm in August announced it was freezing its associates at their current salaries for at least six months. Among Silicon Valley firms, salary freezes are a common remedy being considered to alleviate the cash crunch. “We have not considered pay cuts,” said Donna Petkanics, managing director of operations at Palo Alto, Calif.-based Wilson Sonsini Goodrich & Rosati. “But we are evaluating other steps. “Our goal is to make sure we’re competitive but also realistic aboutwhat the market will bear in terms of legal fees,” Petkanics said. At Palo Alto’s Cooley Godward, Mark Pitchford, partner and chief operating officer, said the firm is beginning to consider next year’s salaries but hasn’t made a decision. “It’s hard to get a firm grasp of what the business climate is going to look like in 2002,” Pitchford said. Pillsbury Winthrop’s Park said firm managers will be mum on the topic of associate salaries until next month. “We need to look outside of what’s happening in Silicon Valley and look at all our markets to make sure we’re competitive,” Park said. For its part, VLG is billing its salary cuts as an attempt to align its pay structure with the firm’s business model, which emphasizes equity stakes in clients. “What we’re trying to do is treat everybody like an owner in the business,” Keller said. Keller said the firm moved away from its ideal when it was forced to match the dramatic increases in associate base pay that Menlo Park-based Gunderson Dettmer Stough Villeneuve Franklin & Hachigian set in late 1999. A handful of VLG associates queried about the changes in compensation said they were disappointed with the move and are more likely to search for another job. “It makes pay more volatile than you would expect at a law firm and maybe that’s more in line with a venture capital firm, but it’s very different than what I signed up for,” said one senior associate. And with the volume of legal work in the Valley still languishing, VLG associates aren’t counting on the profit points being worth much. “At the moment, I’m discounting [the points] and seeing it for what it is, a straight pay cut,” said a senior associate who spoke on condition of anonymity. A midlevel associate, who also spoke on the condition of anonymity, said VLG’s decision is another sign the Valley’s lure has dimmed. “It’s one more blow to the luster, to the glamour, of being an associate at a Silicon Valley firm.”

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