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Nationwide Salary Cut Watch: Sonnenschein Has Had Enough of Lockstep

Thursday, May 21, 2009 4:35 PM - By Elie Mystal

Sonnenschein logo.jpgJust a few months ago, Sonnenschein was doling out seven-figure paydays to partners from the dissolving Thacher Proffitt & Wood. Today, the firm is cutting associate salaries.

But the firm has decided to take a major swing at lockstep compensation in the process. The official statement from managing partner Elliott Portnoy starts out with the highest ambitions:

Long before the current economic upheaval that has gripped our clients and profession, survey after survey consistently confirmed a common theme: law firm associates have become increasingly unhappy in their work. Indeed, an entire industry has arisen in the blogosphere, where websites detail — often hour by hour — concerns from associate lawyers around the country and in firms of all sizes and stripes.

And yet, despite these warnings, the fundamentals of how most law firms recruit, develop, and compensate their associate lawyers have remained largely unchanged for too long — to the detriment of the current structure’s sustainability and, more importantly, to the professional reward and promise of our Associates.

As I discussed with you during today’s monthly Firmwide Associate Meeting, Sonnenschein is committed to meaningfully redesigning our relationship with our Associates. I am writing to outline the specific steps we will take together over the next eighteen months to translate our vision, and the key role Associates at Sonnenschein will continue to play in our shared future, into reality.

Hey, don’t blame it on the “blogosphere.” The industry was built this way when we found it.

More visions from Portnoy, after the jump.

After describing all the ways in which the American economy is terrible and the legal industry is fundamentally flawed, Portnoy gets down to the business of redesigning the law firm:

A Comprehensive Redesign

We have concluded after much deliberation that we must look beyond the realities of the current economic environment and make structural changes in our relationship with our Associates that will not only continue to give us greater resilience and flexibility in the near-term, but also position us to better meet the needs of Associates, Partners, and clients over the long-term.

I am writing to share with you Policy & Planning’s commitment to a comprehensive redesign of our relationship with Associates; to outline changes, some of which will take effect in 2009 and others of which will be implemented in 2010; and to ask for your support in shaping our new approach to hiring, developing, staffing, evaluating, and compensating Associates.

The memo then explains some core principles, general themes, and I think something about a Federation phaser (it’s a six-page memo). But part of the Sonnenschein plan is to keep the size of incoming classes small:

Refine Our Recruiting Approach. Our 2009-2010 Associate class already reflects our commitment to reducing first-year and summer class sizes. Our Associate Hiring Committee made this change prior to current market conditions, and we have concluded that smaller class sizes should be the norm going forward. Our recruiting efforts will continue to target outstanding law students and lateral candidates, and our recruiters will focus on recruiting a diverse set of candidates with the attributes most likely to make them successful at Sonnenschein. With fewer entry-level Associates, our newest colleagues will have access to a broader set of opportunities and greater mentoring from senior Associates and Partners.

You’ll remember that Sonnenschein already deferred most of its first year class to 2010. But nine lucky Sonnenschein first years have been pushed back to 2011 — with only a $10,000 deferral stipend. Believe them when they talk about their commitment to reducing first year class sizes.

For associates already in the pipeline, there is this news:

Reduce the Associate base salary scale, while providing opportunities for high performers to exceed current compensation levels. Like many of our competitors, we have concluded that there is an imperative to reduce and align Associate compensation with the needs of our clients and the economic realities of our industry and Firm. We do not do so lightly. Having monitored the marketplace, listened to clients, and engaged in discussions with Associates, our new approach will preserve jobs consistent with our commitment to create opportunities for our Associates to thrive and advance at Sonnenschein….

The net effect will be to reward our highest performing Associates — at levels that can exceed their current compensation — while reducing our cost structure in ways that will give us flexibility to better meet the needs and changes our clients are seeking. In the next few days, each Associate will receive a memorandum that provides information on their individualized base salary for the balance of the year. Our first year Associate base salary under the new approach will be set at $145,000 in most of the cities in which we operate, and the salary levels for the balance of our Associate classes vary by year and geography consistent with our standard practice.

Sonnenschein is ranked #62 according to Vault. Very few of the firms that are ranked similarly have reduced associate salaries. Of course, very few firms are visionary.

But these salary cuts only apply to the balance of 2009. In 2010, well, who knows what will happen:

In 2010, we will complete the development and implementation of a new relationship with our Associates through several complementary initiatives:

Shift the Associate salary structure away from a lockstep, law school class to a performance and merit-based system. The time has come to move away from the traditional method of compensation for Associates. I appreciate the input of the Associates Committee, and the extensive participation of Associates during the recent listening sessions held by the Legal Development Committee in each of our offices. We are fortunate to have an extraordinarily talented group of Associates, and believe the traditional approach tied to law school graduation year is outmoded, inconsistent with professional services industry compensation structures, misaligned with client interests, and no longer consistent with our commitment to rewarding our highest performing Associates.

Accordingly, today we are accelerating our efforts begun last year to move toward a performance and merit-based compensation and promotion system for Associates.

We expect to share later this year a new performance-based system for implementation in 2010. We envision this system will be one in which advancement more closely relates to personal skills development and client service, with variable compensation representing a higher proportion of total Associate compensation so that our high performing Associates have the potential for accelerated advancement and above-market total compensation.

If you ever wanted to work at a firm where a first-year can make more than a fifth-year, here’s your chance.

Interestingly, it seems that Sonnenschein really wants to be a market leader for killing lockstep compensation:

This holistic approach to our relationship with our Associates is the right path to be pursuing, and I am proud that Sonnenschein will help lead the way for our profession. We will create a more realistic, comprehensive, and variable compensation structure that better positions our Firm to avoid the typical law firm response of sharpened pencils and reductions the moment client demands or workload needs contract. With our new approach to recruiting, staffing, training, mentoring, and advancement, we will be far more nimble. Most importantly, we will enhance the professional development path, and career security and satisfaction, that is the priority I have heard about most from many of you.

As people try to digest Sonnenschein’s market leading changes, there is really only one question that springs to mind:

Read the full memo below.

Redesigning Sonnenschein’s Relationship with Our Associates [PDF]

Sonnenschein announces associate pay cuts, performance-based compensation system [National Law Journal]

Earlier: For Whom the Sun Still Shines (Thacher Partners Joined Sonnenschein for Seven-Figure Paydays)

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