Associate Salaries, Salary Cuts, Salary Freeze

Hope You’re Enjoying the Paycut, Because It’s Here to Stay

Salary Cuts.jpgThe artifice of the slurpee salary freeze and the “temporary” salary cut can be put to rest. As long as you are not doing keggers with the firm Kool-Aid, you already know that Biglaw will keep associate salaries depressed for as long as they can. It’s not hard to see where this is going, as Am Law Daily reports:

“If you do the math,” says Steven Davis, chairman of Dewey & LeBoeuf, “associate compensation is coming down across the board.” …
“I lean much more in the direction that this is not a blip,” says Dewey’s Davis. “In the medium term, we’re seeing, and will continue to see, a paradigm shift” in associate compensation. (Dewey, interestingly, hasn’t announced cuts in compensation or in bonuses, though it has sent dozens of 2009 first-years on leave with a stipend.)

That last parenthetical isn’t entirely forthright. Dewey hasn’t announced bonuses yet. If the firm follows Cravath or S&C, that will represent a “cut” in bonuses from last year (to say nothing of two years ago). If Dewey doesn’t follow the market and instead pays what it did last year, I’ll strip naked and run through the streets screaming “I am TTT! I am so TTT!”
But the general point — the one about basic “math” — is exceedingly obvious.
The only open question is whether firms will keep the deflationary salaries on lockstep, or if they’ll move towards a system that rewards people based on still undefined “performance metrics” instead of experience and billable hours.

I imagine that Ralph Baxter — chairman and CEO of Orrick — gets up in the morning and starts singing All Eyez on Me:

Davis and three others in firm management who spoke with us say they are closely watching new associate compensation models like the one announced last week by Orrick Herrington & Sutcliffe: a tiered system in which advancement is merit-based.

If the Orrick system allows the firm to keep profits per partner high, and the firm doesn’t lose its rising superstars, and the firm doesn’t get slammed in recruiting, then we are looking at the new Biglaw associate compensation model:

These models, while not explicitly tied to lowering overall associate compensation, are more flexible than lockstep and have the potential to recalibrate firm starting salaries “even lower than the general reductions already in effect,” [according to James Cotterman, a consultant at Altman Weil].

As I’ve mentioned before, we are looking at classic Shock Doctrine. Right now, firms are able to push through compensation models to “recalibrate” labor costs. Once the changes are implemented, they are likely to stay in place, even when market conditions significantly improve.
Employers never want to raise salaries of employees. It’s stupid. When was the last time you paid more for something than you had to? So even if the market improves there will be a natural reluctance to eliminate the pay cuts.
So people need to get used to their reduced pay. It’s going to be here for a while.
Associate Pay Cuts Here to Stay, Say Firms, Analysts [Am Law Daily]
Earlier: Nationwide Pay Freeze Update: Slurpees Still on Ice (or Poured Out)
Orrick’s New Compensation Structure

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