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Salary Cut Watch: Gardere Wynne Cuts Salaries that ‘Just Do Not Make Sense’

Wednesday, May 6, 2009 3:30 PM - By Elie Mystal

Salary Cuts.jpgIn March, we reported on layoffs at the mid-sized Texas firm, Gardere Wynne Sewell. Since everything is quieter in Texas, the firm confirmed the layoffs but declined to mention how many people were let go.

Today, Above the Law has learned that Gardere Wynne has also cut associate salaries. And the firm is not shy about it. Managing partner Steve Good provided Above the Law with this statement about the salary cuts:

As most law firms are recognizing, starting salaries for new associates that begin at $160,000 just do not make sense in the current economic environment, and probably did not make sense even before the downturn. Many clients, both ours and those of other law firms, have been upset with these salary levels and as a result have asked law firms to not use first or even second-year lawyers on their matters. That reaction is not healthy for the law firm, the client or the associate and the associate’s future development. We think that the changes that we are implementing are necessary to bring some economic rationality back to our associate compensation program, particularly in a state like Texas, where there is no state income tax and the cost of housing is among the lowest in the nation. Notwithstanding that, large law firms in Texas have been paying first-year associates the same base compensation as an associate living in Manhattan, and $20,000 more than a first-year associate in Atlanta, where the cost of living is similar - it simply makes no sense and we decided to stop.

Effective May 1st, the Gardere will reduce first year salaries to $145,000 and second year salaries to $150,000.

Clients are upset about the high price of junior attorneys? That’s great, junior attorneys have long been upset at clients that dump work on people at 4:00 p.m. on Friday and expect it to be turned around by first thing Monday morning. Surely, a middle ground will soon be forged where clients pay less and attorneys enjoy the fruit of nights and weekends. I’m holding my breath.

But for a firm like Gardere, it is hard to argue with the raw economics of the situation. If clients want this, and there are no reasonable options for attorneys to lateral away, than firms will pay what the market will bear. Unless something really interesting happens when salary cutting firms go out to recruit this fall, more firms could look to cut salaries.

Read the full Gardere statement after the jump.

GARDERE WYNNE — STATEMENT — SALARY REDUCTION

Gardere Wynne logo.JPGGardere announced yesterday to our partners and associates that we are deferring the start date for our Fall 2009 associates until January 2010 and that those deferred will receive a $10,000 stipend. We also announced that the base compensation for our current first-year associates (generally the Class of 2008) would be reduced from $160,000 to $145,000, and that the base compensation for our current second-year associates will be set at $150,000. Although our fiscal year began on April 1, 2009, these reductions will be effective prospectively beginning May 1, 2009. For subsequent classes, the base compensation will be frozen at last year’s amounts. In addition, if an associate did not reach certain productivity targets last year, some portion of their base compensation will be deferred, with the opportunity to earn it back by the end of the year. As our fiscal year began on April 1, 2009, the changes applicable to the subsequent classes will be effective as of that date.

As most law firms are recognizing, starting salaries for new associates that begin at $160,000 just do not make sense in the current economic environment, and probably did not make sense even before the downturn. Many clients, both ours and those of other law firms, have been upset with these salary levels and as a result have asked law firms to not use first or even second-year lawyers on their matters. That reaction is not healthy for the law firm, the client or the associate and the associate’s future development. We think that the changes that we are implementing are necessary to bring some economic rationality back to our associate compensation program, particularly in a state like Texas, where there is no state income tax and the cost of housing is among the lowest in the nation. Notwithstanding that, large law firms in Texas have been paying first-year associates the same base compensation as an associate living in Manhattan, and $20,000 more than a first-year associate in Atlanta, where the cost of living is similar - it simply makes no sense and we decided to stop. We realize that we have made this decision in advance of any action taken by many of our competitors in Texas, and to some extent that was a function of our April 1, 2009 fiscal year (and new associate salary start date) requiring that a decision be made now. Many firms around the country are making the same or similar decisions, and we expect that as other firms approach their associate salary evaluation dates, they will come to the same conclusion. If not, we still think that we have made the correct business decision.

Stephen Good
Managing Partner
Gardere Wynne Sewell LLP


Earlier: Nationwide Layoff Watch: More From Texas
What is Texas Afraid Of?

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