Associate Salaries, Howrey LLP, Killing Lockstep

Will Law Firms Follow Howrey’s Profit Diminishing Lead?

Last June, we reported that Howrey decided to make a big change to the law firm business model. The firm cut first year starting salaries to $100,000. In exchange, the first year program would involve a heavy emphasis on training. Associate billables would be capped at 700 hours and Howrey reduced the rates charged to clients for first year work. The low-salary/training emphasis carried on into the second year.

As we mentioned this morning, the Washington Post took a closer look at Howrey’s new program.

How is it going? Well, it seems great, unless you like money…

As we’ve mentioned before, the money hasn’t been rolling into Howrey. The Washington Post reports it this way:

What saves clients money costs the firm. Like many firms, Howrey’s gross revenue and profit per partner dropped in 2009, by 16.3 and 34.9 percent respectively, according to figures compiled by the American Lawyer. Ripley said the costs of the program — more infrastructure, lost revenue from fewer billable hours at lower rates, lengthy client visits — will be ongoing. “The long term here is really key,” [Hiring Partner Richard A. Ripley] said.

Back in June, almost 70% of Above the Law poll respondents said that they would be interested in the Howrey program. However, the market was worse back then — only 10% of our readers said that they thought they could get a $160K job.

As the market improves, will new recruits still be willing to take a $60K pay cut in exchange for enhanced training? Howrey hopes so:

“What we’re doing is asking these law students to go through some introspection to determine that this is what they’d like to do,” said Eileen C. Billinson, a member of Howrey’s executive team.

On the flip side, Howrey’s program is at least an innovative approach to deal with the fact that law school students are not ready to provide top notch client services upon graduation:

Howrey Managing Partner Robert F. Ruyak has compared the two-year program to a medical residency or accounting secondment, in which junior employees are loaned out to clients for a set period of time. First Tier associates earn less money — salary of $100,000 annually, plus a $25,000 completion bonus or student loan stipend — but attend structured training sessions, shadow experienced attorneys, have access to an on-site writing consultant and spend three-month stints in clients’ legal departments, all at the expense of the firm. Once the First Tier is completed, salaries return to market rates and associates proceed through the remaining four stages of their career ladder based on merit, on their way to be considered for partnership.

It sounds reasonable on paper. But it’s one thing to ask associates to forgo market salaries for a year. If Howrey partners can’t make as much money as their peers under the new system, how long will it last?

Howrey law firm shifts pay, development of entry-level attorneys [Washington Post]
Law Firms Watch Howrey’s ‘Prescient’ Associate Training, Despite Drag on Profits [ABA Journal]

Earlier: Howrey First Years to $100K
What’s Wrong With Howrey? Profits are Down and Partners Will Be Axed.

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