Biglaw, Layoffs, Midsize Firms / Regional Firms, Money, Real Estate, Skaddenfreude

Nationwide Pay Raise Cut Watch: NY to 141?

100 dollar bill Above the Law Above the Law law firm salary legal blog legal tabloid Above the Law.JPGEarlier this month, there was some discussion in the comments about law firms possibly cutting associate salaries to cope with the economic downturn. The scenario sounded far-fetched — but maybe it’s not as far-fetched as some might have hoped.
Look, we aren’t saying that the sky is falling. There’s a world of difference between a law firm based in Fort Lauderdale, with 128 lawyers and extensive exposure to Florida real estate, and the giants of Biglaw, with hundreds of millions (or even billions) in revenue, profits per partner well into the seven figures, and diversified practices.
But still, nobody would call this good news. From the Daily Business Review:

Attorneys at Becker & Poliakoff are being hit with a 12 percent pay cut for the foreseeable future to help the real estate-dominated firm deal with a drop in profitability and delays in collections.

Becker & Poliakoff is the first major South Florida firm to turn to its lawyers to make cuts to help it deal with the economic slowdown and real estate downturn. Other firms have trimmed staff jobs, including paralegals and secretaries, and cut back on other expenses to help cope with the economic landscape.

Alan Becker, the firm’s managing shareholder, informed attorneys and support staff about the pay deferment plan via podcast Wednesday. The cut took effect Thursday and affects only lawyers. No layoffs are expected.

So that’s the silver lining to the proverbial cloud. You’ve suffered a 12 percent haircut on your salary, but at least your job is secure.
We don’t know what the Becker & Poliakoff pay scale is, but we’re guessing it’s well below the $160K scale. Back in 2003, it looks like their starting salaries were in the $63K-$70K range.
But just out of curiosity, what would Biglaw salaries look like if they were trimmed in this manner? If a 12 percent reduction were applied to the first three steps of the standard New York pay scale, salaries would go from 160-170-185 to 141-150-163.
More discussion, after the jump.

As noted, Becker & Poliakoff is more exposed than most firms to the troubles of the real estate and credit markets. They’re based in south Florida, and they focus on real estate and construction:

The Fort Lauderdale-based firm specializing in real estate, construction and government law brought in $60 million in revenue last year, but clients failed to pay $2.5 million, or about 4 percent of total billings, Becker said, adding that it was the firm’s best revenue year ever.

“Look at the economy out there,” Becker said. “We have a tremendous number of real estate developer clients, and many are hanging on by their fingertips. So what am I supposed to do? Tell them I’m going to cut them off instead of trying to work with them?”

One catty competitor doubts Becker’s explanation:

A managing partner speaking on condition of anonymity said Becker’s math does not add up.

“In order to cut all lawyers compensation by 12 percent the problem must be bigger than a 4 percent reduction in revenue,” the managing partner said. “I believe he’s either off more now or afraid he’ll be off more later.”

The managing partner also said that it is highly unusual to cut pay to associates when the firm’s profitability is suffering.

If things improve, Becker hopes to make it up to them:

Becker said the pay cut would be lifted if clients begin paying again, provided the attorneys are still with the firm. He said he expects to pay the money retroactively to attorneys who stay with the firm.

The salary cuts don’t bode well for the future of the firm:

The Becker & Poliakoff cutback strategy is uncommon. When firms hit a rough patch they typically hold back partner compensation and borrow money — unless the problem is particularly acute. It is also rare for a firm to turn to associates to help keep the firm afloat financially. Typically that is a burden faced by partners who share in a firm’s financial ups and downs.

How do the associates feel? One might expect revolt. But at least one associate is okay with it (at least when he’s being interviewed, on the record, by the DBR):

Neil Schiller, an associate in government law and lobbying at the firm’s Fort Lauderdale office, said he is glad the firm decided to defer salaries rather than impose layoffs.

“This is a family,” Schiller said. “I would rather take a temporary deferral than see a family member leave permanently.”

These are just excerpts. Read the whole article — which is quite interesting, in a depressing sort of way — over here.
Caught in Real Estate Downturn, Firm Cuts Attorneys’ Pay by 12 Percent [Daily Business Review]

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