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After White & Case in Miami stunned the legal community two years ago by raising first-year associate pay into the six-figure stratosphere, Cesar L. Alvarez, CEO of Greenberg Traurig in Miami, said his firm would not overreact. “I’m not going to do anything that is not on an economically sound basis,” he said. Yet, in April 2000, two months after White & Case’s pay hike, Alvarez decided to raise first-year associate pay 15 percent to 20 percent. Many firms across South Florida followed suit. Holland & Knight, Bilzin Sumberg Dunn Baena Price & Axelrod and Akerman Senterfitt, among others, raised associate pay to $105,000. Two years later, amid a severe economic downturn, those firms are paying the price. Some, including Holland & Knight, Greenberg Traurig, White & Case and Broad and Cassel, are freezing pay. Some are rethinking their entire compensation structure and a few, in South Florida and around the country, have resorted to layoffs. “The evidence is very clear now that it was an error,” said Alvarez. He added the net result was that partners felt the pinch. “Shareholders made a lot less money last year,” said Alvarez. “After all, money does not simply appear from nowhere.” And that appears to be the case at several firms, including Tampa-based Holland & Knight, where per equity partner profit in 2001 was flat or declined slightly. Holland & Knight has gone a step further than most in freezing associate pay. According to Rob Rhodes, deputy managing partner of Holland & Knight, the firm has frozen this year’s round of step raises for associate attorneys. The pain won’t be evenly spread among associates, and some wonder whether that’s intentional. Despite the firm’s management statements that the freeze in associate step raises is not intended to thin the ranks, in practice the action will have a sharp impact on senior associates. At Holland & Knight, which has 194 attorneys in its three South Florida offices, the step increase from first-year associate to second-year is only $1,000. But the increase anticipated by associates moving from fifth to sixth year is $9,000, and from sixth to seventh, the highest level, is $10,000. Put that disproportionate pay hit alongside recent statements by the firm’s managing partner Robert Fagen, and senior associates have reason to feel threatened. “These kind of times,” Fagen said in the February issue of the American Lawyer magazine, “make you focus harder on what are the criteria for someone coming into the position of partner and make you look harder at what it takes to stay in that position.” Rhodes said that it’s not just the seven-step system of associate raises that’s being frozen. The entire compensation schedule, including billable hours and profitability bonuses are under review, he said. Firm management hopes to come up with a new system within a few of months. In some cases, firms are going beyond pay freezes and are laying people off. Among them is Broad and Cassel in Miami, who laid off about three of its 30 attorneys last year. Times have definitely changed. Two years ago was a good time to be a young associate: Robin Lea, an associate at Steel Hector & Davis who was not even a year out of law school in spring 2000, got a 60 percent pay raise. Alvarez, whose law firm has been the fastest-growing in America over the last five years, added: “The economics did not support the bubble. We saw increases of $20,000 to $35,000 overnight. We were paying at the peak of the bubble and it made no sense.” The “bubble” was the result of lawyer retention problems in Silicon Valley. Firms like Gunderson Dettmer Stough Villeneuve Franklin & Hachigian and Brobeck Phleger & Harrison were losing young lawyers to dot-com startups and decided to pay first-year associates upwards of $125,000 to slow the defections. In response, law firms across the country also raised associate pay, resulting in a bonanza for young attorneys. The trend hit South Florida when White & Case pumped up associate salaries for all of its offices, including Miami. The White & Case move left managing partners of some Miami firms grumbling because young associates in Miami were not being lured away by dot-com startups. “The pay raises came down to Florida where we weren’t losing people,” said Mike Segal, managing partner at Broad and Cassel. Nevertheless, pay rose and many managing partners felt they had no choice but to match the competition. “We are in a market economy,” said Victor Alvarez, managing partner of White & Case’s Miami office. “The market dictated increased compensation levels.” Some firms resisted more than others. “We tried not to raise salaries because we knew it was a bubble,” said Cesar Alvarez. “But in the end we did raise salaries. Why? Well, if a partner is coming to you saying that two associates in their practice group are leaving, what are you to do? You do the best you can and we raised compensation.” And Cesar Alvarez has no doubt the mistakes of the past will be repeated: “A bubble will happen again and law firms will make the same mistake again.”

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