This Week in Layoffs: 11.01.09

Ed. note: Above the Law has teamed up with Law Shucks, which has done excellent work translating all of the layoff news into user-friendly charts and graphs: the Layoff Tracker.
Last week we wrote that jobless claims were higher than expected and that predicting anything with any degree of confidence seemed pointless. This week, the number of people receiving unemployment benefits was lower than expected, the lowest levels in seven months, and that was before announcement that benefits will be extended again. Still, the best that can be said is that the cuts are slowing:

Companies are cutting fewer jobs as they see more evidence of a recovery, helped by government stimulus efforts and less weakness in housing and manufacturing. While a separate report today showed the economy expanded for the first time in more than a year, a rebound in hiring may take longer to materialize

So while things bounced around unpredictably in the broader market, we had two notable announcements in law-firm innovations this week. We’ll cut right to them after the jump.


Kaye Scholer is the big newsmaker this week because the firm has gone so far off the reservation. The announcement that some members of the class will be starting on a normal career path and others will be in a captive pro bono program came out of left field and hasn’t been particularly well received, especially by those affected. It’s laudable that the firm is being creative and the attorneys involved at least won’t have to worry about finding a non-profit job to justify a stipend. It’s amazing how difficult it is to find someone to accept free labor these days. But as many have noted, there are pretty significant downsides, including the late notice, the petty clawback of the $10,000 salary advance (which goes from 6% of first-year comp when accepted to 16%), and the fact that people will be forced to work in New York City with its ultra-high cost of living, rather than finding work in a cheaper locale more suited to the $60,000 salary.

Reed Smith also broke new ground this week (when talking about major law firms, the bar for innovation is pretty low), with its CareeRS™ program. Associates will now be lumped together in bands, junior; mid-level, or senior, depending on career progression. The example is the third year who has progressed rapidly may be a mid-level while the fifth year who takes another path may still be classified as a junior. Why does neither of those examples seem appealing? Partners seem incentivized to puff the associates into the next band to get the billing bump, so any quasi-presentable second year will now get billed as a mid-level a year or two earlier. Clients will surely love that. Meanwhile, Reed Smith is keeping people around for five years who haven’t yet performed at a level achievable by a third year (or more junior) attorney? That seems equally unlikely.

Foley Hoag will start charging associates for attorney development — how else do you describe a paycut with that as a stated goal? The affected attorneys also get to subsidize the firm’s recruiting (of other lawyers) and retention efforts. We’re not sure exactly how a pay cut facilitates retention, though.
Don’t get us wrong, at Law Shucks we believe in pay-for-performance, but the baseline has to be fair and clear, and premier performance has to really be compensated. Too often the baseline gets reset to a low level but the bonuses never materialize.

That drifting away from lockstep is going international: major Australian firms are also considering merit-based compensation.
For those interested in the market, Texas Lawyer has done a roundup of that state’s firms’ activities — it’s just a microcosm of what we’ve been reporting for months. Headcounts down, no attrition, deferred start dates, and salary cuts. The piece does have one good example of lawyer logic, though:

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In the Texas offices of New York-based Weil, Gotshal & Manges, the majority of the firm’s new Texas associates, nine of 15, have voluntarily decided to take the firm’s offer to delay their start dates until January 2011, says Glenn D. West, managing partner of the firm’s Dallas office. Of the remaining new associates two are starting this fall and four are starting on Jan. 19, 2010.

"It’s a way to address the disconnect that all law firms have experienced between the incoming classes and the lack of attrition that occurred over the last 12 to 18 months, compared to prior years," West says. Law firms hire based on certain assumptions of historical ratios of accepted offers and historical attrition, he says. With lower associate attrition rates due to the ailing economy, the firm has more lawyers than expected, he says.

We’ve said it before and we’ll say it again: deferring associates isn’t "addressing" anything; it’s procrastinating. There will be another logjam next year and every other year until the problem is actually addressed – by rescinded offers, drastically reduced incoming hiring, or an unlikely explosion in demand. The fact that so many people "voluntarily decided to take the firm’s offer" is more a commentary that they’d rather get paid more than most Americans to sit around and do nothing for a year than anything else (not to mention we question the voluntariness of the whole thing).

Summer associate offer rates, and offer rescissions, don’t count as layoffs to us, although they probably feel that way to the affected individuals. McGuire Woods is taking advantage of the lousy market by trickling offers out based on its own needs, knowing that few people have options.

Ever the optimists, we close with the subject that fills associates’ minds this team of year: bonuses. DLA Piper has announced that it will be paying something, as has Slaughter & May, although it’s so low (five percent) that Law Shucks will no longer refer to the firm as the English Wachtell until that is corrected (that would probably be a fine result at most firms this year, but we expect more from Wachtell). Still, there’s certainly reason for those who have survived this brutal year to believe that they’ll get a little something extra for the effort this year. At Law Shucks, we’re counting on two factors outweighing (if not at least counterbalancing) the rough year for firms: bonuses would be a strong signal that the firms have kept the people they really want, and want them to stay; and the S&P 500 is up 14% year-to-date, even after this crappy week (S&P down 4%). While we’ve said all along that even though most of the profit this year has come from the expense side, those are still good results for clients (and even better counting from the March lows).

Who knows, if the bonus is big enough, maybe you can buy yourself an original tasting room from a real Scottish castle.

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The post continues on Law Shucks with a list of all the firms that had reported layoffs this week plus the final numbers for the week and month.

Also, be sure to check Law Shucks during the week as the October recap (complete with charts) will go up around Monday or Tuesday.


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