An article in today’s New York Times, by former WSJ Law Blog writer Dan Slater, discusses changing law firm business models. Much of the piece covers ground that will be familiar to ATL readers. But the article contains some interesting new information about Kaye Scholer (where Slater once worked).
According to the Times article, it appears that the firm essentially lied to some of its new associates:
In the summer of 2008, Kaye Scholer’s New York office extended offers of full-time employment to 31 students, many from top schools. They would return to law school for their third years, they thought, then graduate, take the bar exam and begin at the firm in January 2010, at a base salary approximating the current level of $160,000.
About two months before the start date, however, the firm notified 18 of the 31, a group including law graduates from Columbia, New York and Northwestern Universities, that they would be relegated, upon arrival, to the firm’s public interest group. There, they would work on pro bono matters and make $60,000 a year.
All 18 accepted the revised offer.
In March, about two months after starting, 17 of the 18 were assigned to a document review project, for a paying client, and told to bill 40 hours a week. For this, these associates will make an extra $30 an hour, approximately the hourly rate of their base salary.
We reported on Kaye Scholer’s $60,000 a year, pro bono associate plan back in October. How did the firm characterize it to us at the time?
Firm managing partner Barry Wilner described the program as a positive way for to give back to the community and provide training for its young lawyers:
It’s incredibly difficult to get public interest work in this environment.… It’s a good thing from the standpoint that the firm is providing excellent public interest training and mentoring.
Yeah, we bet there’s a whole lot of training and mentoring going on in the middle of a document review.
But let’s move on from Kaye Scholer, since the piece is really about Biglaw in general, not Kaye Scholer specifically. An overarching theme is that law firm business models are outdated and need to change. This discussion includes a hint of the familiar claim that associate salaries are too high. The article begins:
“Big firms are in a crucible of change. Some don’t realize it yet. But the fat will be wrought from the system.”
So says Peter Zeughauser, a consultant to law firms and former general counsel of the Irvine Company. He is one of the few to suggest publicly that Big Law — which has seen little change over the years, except for annual salary increases — may have to rethink its model.
In one decade, in part because of the Internet and housing bubbles, salaries for associates at big firms shot to the moon. From 1997 to 2007, the median starting salary at the nation’s largest firms doubled, to $160,000 a year plus bonus, from $80,000, according to the Association for Legal Career Professionals. The universal system of lock-step pay meant law school graduates needed only to be hired by a firm to be virtually guaranteed eight or more years of employment, with annual, across-the-board raises.
I think we need a new rule: nobody is allowed to quote statistics on associate salary inflation without also showing data on partner profit increases and law school tuition hikes over the same time period. Without such a rule, associates can be unfairly depicted as self-entitled loss leaders. Things look quite different once you remember that (1) law schools have used these salaries to justify ungodly tuition rates, and (2) partners pay these salaries only after they’ve fattened themselves on all the revenue they can squeeze out of their clients.
Could inflated associate salaries be a problem? Absolutely. But let’s remember that in a contest of unabashed greed, associates are barely in the running.
The Times article goes onto to discuss the various strategies for killing lockstep associates compensation that we’ve been documenting here. Can we get a consultant to speak to law firms about the business model of lying to or misleading associates in order to make some extra cash? As Slater points out, changing the law firm business model is fundamentally an exercise in managing the humans who work for you:
To afford rich associate salaries, maintain profitability and keep rainmaking partners happy, large firms, like some of the Wall Street institutions they service, have historically relied on heavily leveraged business models. The difference is that, in law, the leverage is not financial but human.
With all the talk of changing the Biglaw model, it’s important to remember that the best firms, at the very top, are doing just fine. The best firms are not moving to a merit-based compensation model, they’re not falling over themselves to reduce associate compensation, and — surprise — so far they’re not struggling to survive.
At Law Firms, Reconsidering the Model for Associates’ Pay [New York Times]