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The poor economy is having a significant impact on pay for associates at the nation’s largest law firms, according to The National Law Journal‘s 2001 survey of what lawyers earn. Law firms across the country report that they will be keeping their first-year associate salaries at levels set in 2000 or at the beginning of 2001, putting an end to the latest era of massive associate pay raises. The survey, using information compiled by the NLJ‘s sister publication, The American Lawyer, shows that profits per partner at many firms reached historic heights in fiscal 2000, the most recent year figures were available. But the latest associate compensation numbers appear to be a clear indicator that fiscal 2001 will not be as rosy as 2000 and that the firms are experiencing a decline in business. STEADY AT $135,000 As a result, in the next 12 months or beyond, as other positions in the legal profession continue to see small but assured annual raises, associates at large law firms — historically the most volatile category of lawyers — may experience little change in compensation. In Boston, for instance, Hale and Dorr will not raise salaries for its class of 2001 associates beyond the $135,000 base rate set in January. “We’re holding the line because increasing compensation doesn’t fit the current economy,” says William F. Lee, managing partner. San Francisco-based Brobeck, Phleger & Harrison also raised associate starting salaries to $135,000 in January, but the firm does not anticipate any further increases, says its chairman, Tower C. Snow Jr. Houston-based Vinson & Elkins will keep incoming associates in its Texas offices at $122,000 per year, says managing partner Harry M. Reasoner. “It’s clear we will not raise our associate compensation,” Reasoner says. “I expect this to be a generalized reaction to the slowdown in the economy.” Blane Prescott, a partner in the San Francisco office of Newtown Square, Pa., consultant Altman Weil Inc., predicts that because starting salaries outpaced the market so dramatically, “I would not be surprised if for the next three years there was no change” in incoming associate rates. These decisions to hold the line on associate compensation are being applied to more senior associates as well, the NLJ survey found. Firms are not rolling back salary levels, says Robert Major of the San Francisco office of legal recruitment firm Major, Hagen & Africa. But, reports Prescott, “Some firms have retracted bonuses and backed away from signing bonuses so they can go out and say, ‘We didn’t reduce salaries,’ ” — even though total compensation went down. Some of these law firms may yet change course and raise associate compensation later this year. But the signs point away from this — primarily because the justifications for the steep pay raises of the past year or so are gone, Major says. When Gunderson Detmer of Menlo Park and other Northern California firms started the stampede in December 1999 and January 2000, “Silicon Valley firms were faced with an avalanche of work” and associates were being snatched by dot-coms for in-house positions, he says. But now the work has slowed and the dot-coms have faded, ending both the intense competition and dire need for associates. In fact, layoffs have begun at some major firms, including the Venture Law Group and Boston’s Mintz, Levin, Cohn, Ferris, Glovsky and Popeo. “I talked to an associate yesterday from the class of 2000 who had just been given notice,” says Major, who would not name the firm. This was an order of the coif graduate from an elite law school. The attorney thought that, as a first-year associate, he was protected, Major says. But the rules have changed: “Now it’s last in, first out.” NOT LAYOFFS — ATTRITION Most firms cutting back attorneys are not calling the cutbacks layoffs. “We’re told this is natural attrition,” says Linda Sloan-Young of the Atlanta legal search firm Hughes & Sloan. But, she adds, the cutbacks are higher than in previous years at these firms. Some firms are using quality concerns as a subterfuge for making deep cuts, says Prescott. Several firms that hired massive numbers of associates — 70 to 100 attorneys in a particular class — are now giving “quality warning notices to 10, 15, 20 lawyers in these classes,” he reports. Major notes that he has been getting calls from senior partners at several firms that have not had layoffs yet but are looking to find new jobs for young associates. “They’re telling me, ‘We can’t make their being here a viable proposition.’ What’s really telling is when I ask them if their work is good and they say, ‘We don’t know, we haven’t had enough work in the last six months to make any reasonable calculation.’ “ But even if the slowing economy deepens into a recession, no one expects wholesale layoffs to follow. “There will be no return to the bloodletting of the 1990s,” says Kenneth Hildebrandt, a consultant at Somerset, N.J.’s Hildebrandt International. “When the economy went up, the firms couldn’t handle the work. Firms now understand that when the economy comes back, they will need these people.” As a result, some firms have vowed not to make economy-driven layoffs. “We have too many people, but we’re committed to protecting them,” says Brobeck’s Snow. “We’re absolutely protecting everyone who meets our standards.” Because of this commitment, “the partners this year will almost certainly take an income hit.” Whatever financial hits some partners may take in the future, and despite the dot-com bubble’s bursting before mid-2000, the most recent fiscal year was a terrific one for big firms, with revenue for the 100 top-grossing U.S. firms increasing 17 percent, according to The American Lawyer. In the fiscal year ending Dec. 31, 2000, profits per partner at Cooley Godward were $905,000, an increase from $665,000 in 1999; at New York’s Shearman & Sterling, the 2000 figure was $1,350,000, up from $1,135,000 in 1999; at New York’s Davis Polk & Wardwell, the figure was $1,740,000, up from $1,610,000; and at McDermott, Will & Emery it was $850,000, up from $785,000. IN-HOUSE LAWYERS Certain in-house attorneys also had a banner year in 2000. Benjamin Heineman, the general counsel of General Electric Co., for example, saw his total compensation rise to $3,075,000 from $2,610,000, aided primarily by a $330,000 increase in his bonus to $1.9 million. The figures for other general counsel were equally impressive, although the numbers may paint a dramatically different picture next year because so much of the compensation to in-house lawyers today is based on company performance. Whatever the upcoming changes, however, the income of associates, partners and general counsel continues to outpace attorneys in nearly all other areas. The district attorney of New York, for example, makes $150,000, or roughly what a third-year associate makes at a typical top-tier firm in that city — and the associate may be eligible for bonuses up to $60,000 beyond this figure. U.S. Supreme Court Chief Justice William H. Rehnquist, with a salary of $186,300, in 10 years makes less than what Heineman makes in one. Associate professors at all the law schools surveyed, with salaries in the $70,000-to-$100,000 range, make less than first-year associates in New York, California and numerous points in between. Most other attorneys did draw raises in the past year, but even with the latest stall in associate raises or the expected decline in profits per partner or general counsel bonuses, during the past decade, the gap between the highest paid and the lowest has continued to broaden. Indeed, when adjusted for inflation, starting attorneys at the Legal Aid Society of New York made $36,089 in 1985 and make $36,750 today. In contrast, first-year associates at New York’s Skadden, Arps, Slate, Meagher & Flom made $80,381 in 1985, when adjusted for inflation, compared with $140,000 today — before bonuses.
Related Charts: What Lawyers Earn • Private Sector • Public Sector • Judiciary

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