It may sound like a tall tale, but not too long ago many Am Law 200 firms were worried about associate attrition. Billables were also a source of anxiety for many associates.

In the war for talent, partners wooed law students, junior associates were paid lavishly, and the best and the brightest among the senior associates were shown the bread crumbs to the partnership. Today’s midlevel associates, the third-, fourth-, and fifth-years, remember those days all too well. Now, as thousands have been laid off, and the survivors’ bonuses, salaries, and basic perks–such as a stipend for their BlackBerrys–have been cut, the associates left behind are anxious and frustrated.

As one midlevel lawyer at Katten Muchin Rosenman (which has laid off more than 40 lawyers in the last 12 months) puts it, firms “should value [their] associates on what they have done, can do, and likely will do again–not based solely on what they have done for you in the last 12 or, heaven forbid, three months.”

Our 2009 annual survey of midlevels found that across the country, associates shared these concerns. We asked approximately 80 questions, including our standard queries about billable hours and the path to partnership, but what stood out from the 6,101 respondents was their unhappiness. Associate morale plummeted to the lowest level in five years (since we started asking about it). It fell from a rating of 3.1 last year, on a scale of 1 to 5, to 2.7. The drop is clearly related to job insecurity. Eighty-three percent of our respondents reported medium or high anxiety about losing their jobs. The midlevels had good reason to be concerned. Sixty-one percent said that their firms had layoffs. And, for those who kept their jobs, there wasn’t enough to do. As early as last year, one-third of associates saw a drop-off in their workload, and this year 46 percent said it had decreased.

Many survey respondents were also disappointed with their firms’ pay cuts, reduced or nonexistent bonuses, and decreased benefits. They were also troubled by what they saw as a lack of transparency on financial issues and layoffs. White & Case’s layoff “decisions were unclear to most associates,” said one midlevel associate. (The firm slashed 270 associate jobs in the last year and had the lowest score for associate satisfaction on our survey.)

In contrast, being candid about finances and layoffs and putting associates’ welfare first helped some firms climb in our rankings. Vorys, Sater, Seymour and Pease rose in our overall survey ranks from 156th to seventh this year–the biggest jump of any firm–by freezing legal fees without freezing associate pay, even though partners saw a 4.5 percent drop in their profits. As a result, the Columbus firm rose from 151st to second on the question of whether associates expect they will be at the firm in two years, and from eighty-first to second on associate morale. (Vorys says it hasn’t had any economic-related layoffs.) “There’s certainly an effect on the bottom line when we don’t raise our rates,” says managing partner Russell Gertmenian. “But we haven’t chosen to cut associate pay to make that money back.”

Ropes & Gray saw its overall ranking rise from nineteenth to ninth, and its score on openness about firm finances jump from 3.91 to 4.33 after it used a staff layoff as an opportunity to discuss the firm’s financial future. When it let go of 104 staff members in January, the Boston-based firm released a statement saying that these were the only layoffs planned for the year. Associates rated these layoff communications a 4, on a 1-to-5 scale.

“We simply said we had no plans to cut lawyers, so people didn’t worry that there would be death by a thousand paper cuts,” says R. Bradford Malt, the firm’s chairman. Instead, Ropes offered yearlong sabbaticals and paid public interest fellowships; 63 current associates have applied for the program.

When law firm management refused to discuss layoffs, associates grew nervous [see Fading Away]. One firm that appeared to follow this model was Cahill Gordon & Reindel. Respondents said that the firm quietly let go an undisclosed number of associates in January. (Cahill declined to comment for this story.) As a result, the New York firm’s associates rated Cahill’s layoff communications a 2.6, and gave the firm a very weak 2 for openness about firm finances—the second-lowest rating of any firm. Morale at the firm also dropped, from a rating of 3.32 to 2.4. “Keep associates in the loop about how the firm is doing financially and whether or not there are likely to be additional layoffs, or other changes,” wrote one Cahill lawyer. “The asso­ciates would be more comfortable with their employment situation if the partners were more open about the firm,” said another.

Associates at the firm that received the lowest score for financial transparency, Potter Anderson & Corroon, felt that they were being left out of discussions about firm finances. Still, the 84-lawyer Wilmington firm, which hasn’t had layoffs, is addressing this issue. Last year Potter brought in a director of associate development, and this spring debuted an annual firmwide meeting on partnership requirements and a new training program for lateral hires. “We may not get it right the first time,” says Donald Wolfe, Jr., who became Potter’s chairman in January. “But we are definitely willing to change.”

Some traditionally low-ranking New York firms, such as Fried, Frank, Harris, Shriver & Jacobson and Cadwalader, Wickersham & Taft, actually saw their overall rankings and scores rise this year, as measurements of work satisfaction improved. The credit freeze that hit their capital markets practices was already evident a year ago, so the crash of major Wall Street banks, which surprised other firms last fall, may have seemed like old news. Cadwalader, last year’s bottom-ranked firm, saw associate morale rise from 2.18 to 3.17 on our survey, work satisfaction rise from 3.72 to 3.83, and the expectation of being at the firm in two years rise from 2.94 to 3.48, even though profits per partner fell by 31 percent last year.

“The only place Cadwalader could go in the rankings was up,” said one New York associate. “A lot of the people that would have been dissatisfied are no longer here. They are probably the ones who would have been laid off a year ago because they didn’t have enough work to do.”

Almost half of the survey respondents said that their workload decreased. However, the smaller, narrowly focused firms were particularly successful at keeping associates busy. For the second year in a row, Boston’s Nutter McClennen & Fish ranked number one overall, and earned the highest evaluation of work satisfaction with a score of 4.88. Associates said that the firm’s size at just 150 lawyers allowed them to take more of a leadership role in their work.

“Size plays an important role,” says Pratt Wiley, a third-year corporate associate at Nutter. “We are able to work directly with clients, and work in small teams with more direct partner interaction.”

Wachtell, Lipton, Rosen & Katz, which scored second-highest in associates’ rating of work satisfaction, stayed particularly busy, advising Schering-Plough Corporation in its $41 billion merger with Merck & Co., Inc., and Centex Corporation on its $3.1 billion merger with Pulte Homes, Inc. The firm’s overall associate satisfaction rank rose by 20 points, boosted in part by increased work satisfaction, which rose from 4.46 to 4.68. And expectations of still being at the firm in two years rose from a score of 3.84 to 4.33.

Pay was also a point of concern. Wachtell was once again the overall leader on associate pay satisfaction, with the median fourth-year asso­ciate earning $215,000, plus a $135,000 bonus. “We have been extremely lucky–as always. Associates here are well taken care of,” said one Wach­tell lawyer.

In contrast, at Thompson Hine, which ranked lowest in compensation and benefits satisfaction, dropping from a score of 4.08 to 2.95, associates bridled at the notion that their work was less valuable than it had been a year ago. The Cleveland-based firm imposed an across-the-board $17,500 cut in February, and offered lawyers the chance to earn back some of the lost wages if they billed at least 1,750 hours. But this provided limited comfort, and the firm’s overall associate satisfaction ranking fell further than any other this year, dropping from eighth to 118th. “We are aware that the firm reduced associate salaries to increase profits per partner,” wrote one Thompson Hine associate. Thompson Hine managing partner David Hooker says, “It is not easy to reduce compensation for people, and I don’t expect anyone to react that it’s a great thing for them personally.”

More than one in five associates also said that their firms reduced benefits­–even more than said that they experienced a pay cut. (Only 16 percent of associates said their firms had pay cuts, but our survey was sent out in March before several firms, such as Sonnenschein Nath & Rosenthal, DLA Piper, and Reed Smith, cut associate salaries.)

Foley Hoag and Greenberg Traurig associates said that their firms cut 401(k) match contributions. Bracewell & Giuliani and Schiff Hardin required associates to contribute more to their health insurance coverage. Additionally, firms eliminated perks ranging from wireless devices to holiday parties. At Pillsbury Winthrop Shaw Pittman and Vinson & Elkins, associates bemoaned the loss of cell phone reimbursement, while Perkins Coie and Weil, Gotshal & Manges midlevels missed their technology stipends. Even the largely contented crew at top-ranked Nutter McClennen felt the pain: “The firm switched from serving Starbucks coffee to regular, unbranded coffee,” said one asso­ciate. “As sad as that is, I miss that the most!”

But despite their frustrations–big and small–associates across the board were confident about the future. While many expected a bumpy few years ahead, most planned to remain in the law. Almost three-quarters said that they were on a partnership track, with 12 percent expecting to be an equity partner in five years, 14 percent expecting to be a nonequity partner, and a third having no idea where they’ll be, roughly the same breakdown as last year. And even after one of the toughest years in law firm history, 77 percent told us that they would recommend their firm to others. Given the chance, a whopping 93 percent said that they would choose to work at their firm again. Survivor guilt, perhaps?

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