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The law firm that started the salary wars is in retreat. Gunderson Dettmer Stough Villeneuve Franklin & Hachigian cancelled its guaranteed bonuses for associates, effectively cutting salaries by as much as $20,000. As if that’s not a glaring enough sign of the current economic downturn, the firm’s associates have largely swallowed last month’s cut and said they are pleased to still have their jobs. “[It's] essentially a cost-cutting measure to give us more flexibility to avoid layoffs,” said Steven Franklin, a Gunderson partner on the firm’s management committee. It’s the most recent attempt by a law firm to trim expenses and retrench. Other Silicon Valley law firms have been thinning their associate ranks by using stricter performance standards than in recent years. But the move is also another blow to Gunderson’s reputation as a salary leader in the Valley. The Menlo Park, Calif.-based corporate boutique failed earlier this year to match Brobeck, Phleger & Harrison’s $10,000 across-the-board pay hike. Gunderson drew national attention in 2000 by guaranteeing first-years a $20,000 bonus and hiking their base pay by 30 percent to $125,000, from the area’s standard base for the starter class of $96,000. Other associate classes saw a comparable bump in pay. The move touched off a bicoastal salary war, as Gunderson’s associate pay climbed above that of its Silicon Valley and New York competitors. Law firms in both locales scrambled to match or exceed Gunderson’s pay scale. No other firm, however, adopted guaranteed bonuses. They created instead a wide range of hours-based bonus programs and other discretionary bonuses. Morrison & Foerster chairman Keith Wetmore said Tuesday that in creating the staggered bonus plans, firms were aiming to reward associates who were working as hard as Gunderson associates. But they didn’t want to force associates to put in Gunderson-style hours if they didn’t want to. But 2000 was a year of record revenues and profits for Silicon Valley’s law firms. Gunderson raked in an estimated $70 million in revenue and scored $900,000 in profits-per-partner, according to an annual survey of law firm finances by The Recorder. Revenues for this year, however, will not break records. Partners complain their revenues are lagging behind projections by as much as 15 percent. When they dreamed up the new salary plan in late 1999, Gunderson partners were guessing their associates would each bill about 2,000 or more hours during 2000, Franklin said. That may have worked last year but so far this year, the firm’s 107 associates were billing at a pace that will put the total at 1,850 hours each. Gunderson associates contacted Tuesday say the change is fair in light of the sour economy. They still hope to get some bonus cash at the year’s end — the firm didn’t abolish bonuses completely — but they can’t count on a minimum amount. “To me it makes sense,” said one first-year associate. “The base is standard. We just had this nice sweet thing.” Another, more senior associate was more blunt: “It’s worse to be firing people.”

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