Have you noticed that whenever there is a story about the long-term future of associate salaries, there is always a quote from somebody at Altman Weil, the law firm consultancy? And have you noticed that their quotes are often advocating deep cuts in associate pay?

The latest example of this curious phenomenon appears in the Fulton County Daily Report:

Altman Weil’s Oct. 27 program, called “Leverage, Lockstep and the Changing Associate Model,” was for law firm clients.

Altman’s James D. Cotterman, who advises firms on compensation, said associate pay did not drop enough in the recent round of cuts at the nation’s big law firms, which included Atlanta’s largest firms.

Cutting pay from $160,000 to $145,000 was only “about half of what was needed,” said Cotterman. The starting salary at big firms in New York, Washington and Los Angeles was $160,000 before the pay reductions that started last spring.

Cotterman said a $15,000 cut does not make a significant difference in “changing the value equation to clients.”

“They probably should have set pay back a decade, to 1998. That’s what I was expecting,” he said. “This story may not be over yet.”

I don’t see James D. Cotterman advocating that profits per partner go back to 1998 levels. I wonder why?

The 2009 billable year hasn’t even ended at most firms yet, but October has been full of announcements from Big Law firms across the country about major changes to associate compensation.  Check out the ATL Career Center, powered by Lateral Link , for the latest information from the legal markets and updates from users about who is paying what when.  In the last week, we have updated the firm snapshots for Schulte Roth & Zabel, Katten Muchin Rosenman, Morrison & Foerster, DLA Piper, Fenwick & West, Bingham McCutchen, Dorsey & Whitney, Foley & Lardner, and Nixon Peabody.  Below are some recent nuggets of golden and not-so-golden news about compensation from the Career Center’s firm snapshots:

• This firm announced that, in January 2010, it will move away from a lockstep compensation system to one that emphasizes merit-based factors as a more significant component of compensation decisions.  The firm says the combination of base pay and discretionary and productivity bonuses will keep overall compensation at or above current levels, but associates worry they may see significantly less pay if they don’t achieve the necessary merit marks.

• This firm has confirmed that it will be paying bonuses in early 2010, an announcement associates can only hope is the first of many.  Although the firm anticipates the amounts will be less than previous years, bonuses are still predicted to range from $5,000 to $50,000.

• This firm recently cut starting salaries to $145,000 in all of its offices (other than New York and Asia). The firm has indicated it will continue to monitor the situation and may re-adjust salaries (up or down) in light of legal market trends if necessary.

• This firm is also taking the merit-based compensation route: although it plans to retain a lockstep scale for base salaries, the firm has announced that its practice group leaders will now have greater discretion in awarding year-end bonuses.  Billable hours will continue to factor into bonus determinations, but so will qualitative and quantitative factors, such as financial productivity, profitability and teamwork.

Use the Career Center’s firm snapshots and comparison tool to find out what other bonus and salary changes firms across the country are making.  And as always, we encourage you to send information about your law firm experience to careercenter@abovethelaw.com.

Ed. note: We mentioned it briefly in Morning Docket, but thought we’d say a bit more (and give folks a place to comment).

A number of large law firms — although, interestingly enough, not the Cravaths and S&Cs and Davis Polks of the world — are moving away from a lockstep system of associate compensation and promotion. See our collected coverage under Killing Lockstep.

The latest one to jump on the bandwagon: Reed Smith. From Ashby Jones of the WSJ Law Blog:

On Tuesday, Reed Smith announced yet another way to skin the cat. Starting early next year, the firm will go to a sort of hybrid lockstep/merit-based pay system for associates, called CareeRS (get it?). Associates will be categorized as junior, mid-level or senior depending not on how many years they’ve served, but on whether they’ve demonstrated certain “core compentencies.” That is, a particularly talented third-year associate might achieve the “mid-level” designation; a fifth-year on a slower pace might still be a “junior.”

According to the firm’s chairman, Greg Jordan, the move was a response, at least in part, to client demands. “The most painful conversation you can have with a client is to tell him that that all of a sudden, you’re charging more for an associate just because the associate has aged a year,” says Jordan. “Something needed to change. The recession made that clear.”

When the WSJ asked Jordan if the majority of associates would progress normally — getting bumped up to midlevel associate after three or so years, and to senior associate after six or so years — he was a bit vague:

“That may be what ends up being the typical pattern. But we really don’t expect that everyone will take this path. Some will advance quickly, others will need time.”

Hmm…. Should this be cause for concern among associates? How many will, like not-so-smart grade schoolers, get “left back” each year?

Some perspectives, after the jump.

The decisions Latham & Watkins has made regarding its associates have been well documented in these pages. Because of the firm’s associate layoffs, some people forget that Latham & Watkins was one of the first firms to freeze associate salaries. Latham froze salaries way back in December of 2008.

It would be somewhat fitting if Latham became one of the first firms to unfreeze associate salaries.

For now, the firm isn’t saying anything. Latham spokespeople did not respond to our multiple requests for comment.

But multiple sources inside Latham are preparing for a thaw. And, if true, Latham could go a long way towards answering one of the most important questions we have about making associate pay raises come back again.

Details from our Latham sources after the jump.

Dorsey & Whitney’s managing partner, Marianne D. Short, was making the rounds in the Minneapolis office yesterday, talking to associates there about the future of the firm.

That future might be one without lockstep compensation. A source reports:

[T]he firm [suggested] it was restructuring our compensation. They did not give us any specific details. But, it seems likely that this will result in another large pay cut for associates. While hazy on the details, Dorsey management indicated that the restructuring will be something like this: we will be given a base pay rate which will be below market (whatever that means these days, but regardless, likely well below what we are currently making after our 10% pay cut), which will be supplemented by a ‘bonus’ if we make our hours to bring compensation up to market.

Alright, slow down. While it does appear that Short broached the subject with associates in Dorsey’s Minneapolis office, it appears that there are still a lot of evaluations and reviews that will have to take place at Dorsey before any final decision is made. It is premature to speculate about what kind of new base salary the firm might offer.

But it does look like the firm is considering a new system. We have statements from the firm and more from our tipsters, after the jump.

Here at Above the Law, we do a lot of work to pierce through the veil of silence regarding compensation at Jones Day. The firm notoriously tries to keep associate salary, partner draws, and bonus information secret. But we’ve been able to report on the Jones Day salary structure and its associate bonuses. We were even able to tell you when Jones Day froze salaries for its staff.

We believe that information wants to be free. But apparently management at Jones Day thinks people are happier when they are kept in the dark. Today, the Recorder reports (subscription) that Jones Days believes its lack of salary transparency makes for a better work environment and has helped the firm make it through the recession. The ABA Journal has this excerpt from the Recorder’s report:

Observers say the law firm’s closed compensation system is helping its efforts to hire quality laterals because partners don’t know what the new hires are paid and can’t complain.

The article notes that the business card for Joe Sims, the lawyer heading up the West Coast expansion, doesn’t indicate his title or business area. His explanation: “We don’t do titles here.”

The story concludes that there are a lot of things Jones Day doesn’t do. “It doesn’t tell its partners what other partners make, it doesn’t issue profit figures, it doesn’t pay bonuses, it doesn’t let partners vote on who will head the firm, it hasn’t conducted mass layoffs, and it doesn’t pay associates in lockstep.”

Partner Joe Sims has talked the talk before on Above the Law. And his firm continues to walk the walk. More details after the jump.

Today is the start of performance review season for associates at Fulbright & Jaworski. As you well know, performance reviews are now very important. We’ve noticed that firms which are miraculously unaffected by the economic recession coincidentally have the toughest performance reviews.

We don’t know if this round of performance reviews will lead to another round of layoffs at Fulbright. But according to an internal Fulbright email obtained by Above the Law, there is a lot on the line even for associates that will keep their jobs at Fulbright. This year’s reviews come with a cash prize — or penalty.

Read the email after the jump.

Finally, we have a law firm partner who has looked in the face of the so-called “hybrid tough love” strategy, and found it wanting. His name is Byrd “Biff” Marshall Jr., and he is the president of GrayRobinson — an Am Law 200 firm that is giving associate raises in the middle of the recession. The Daily Business Review reports:

As other major law firms order layoffs and pay cuts, GrayRobinson is giving an average 8 percent raise to its associates.

Pay raises were as high as 15 percent Tuesday, and 90 percent of associates received raises, said law firm president Byrd “Biff” Marshall Jr. The merit-based increases were decided on an individual basis.

All support staffers at the Orlando-based firm also are getting higher pay, he said. The raises were announced at a firm retreat last weekend.

A friend of mine translated this news into language Partner Emeritus can understand:

While not a peer firm, GrayRobinson has shrugged off the recession caused by my good pal Alan Greenspan. Instead of trashing the moral and economic vitality of its employees, the firm has taken bold action to retain its best people. The actions of Mr. Marshall remind me of my trailblazing days. Back then, firms did not treat their future partners and rainmakers as interchangeable cogs to be used and then discarded. And the entire firm was better for it.

But then America elected as President a senile old man — based solely on his credentials as a minor character actor. He made everybody believe that the wealthy individuals like myself would allow some of our hard-earned money to “trickle down” to lower earning Americans. Fools! Luckily my firm understood the dangers of obscene income inequality and unchecked corporate greed. We shared the wealth not out of charity, but because it made smart business sense. Now, many non-peer institutions are paying for their lack of vision in the ruined careers of their employees and the dissolution of their organizations.

I am not happy that I will have to temporarily delay my planned upgrades to my second yacht. And honestly if Muffy gives me any more back-talk about forgoing her shopping spree in Milan, I’ll have to cashier her and promote wife number four. But my commitment to the long term success of my firm trumps such petty personal concerns. Young attorneys should not be treated as Rick’s Cabaret dancers. They should be treated as our future.

— Partner Maximus

Thanks, PM.

After the jump, more from GrayRobinson.

A month and a half ago, Morgan Lewis announced that it was canceling its 2010 summer program and moving away from lockstep compensation. At the time, some people criticized me for looking at a move away from lockstep compensation as tantamount to a salary cut.

A firm could move away from lockstep to give its associates a larger share of the profits they generate. Is that what Morgan Lewis is thinking?

Morgan Lewis is in the process of holding a series of meetings with associates in various offices. The goal is to let the associates know what the firm is planning to do with salaries starting January 1, 2010.

According to a firm spokesperson, these meetings are preliminary in nature:

As our Chair announced earlier this year, we have decided to move away from lockstep to a performance-based evaluation and compensation model. We are still in the process of developing the new model and are meeting with associates around the firm to solicit their input. We have not yet determined or announced any specific terms of the model, so any reports regarding compensation cuts at this point are pure speculation and false rumor.

Associates who have been in these meetings have a different take on what’s going on.

There’s nothing quite like the burning smell of deflation on a Monday morning. NALP has released its associate salary survey. The good news is that the median starting salary for associates is $130,000. The bad news is that there is no way on God’s green earth that the median salary is going to stay that high. The ABA Journal reports this excerpt from the NALP survey:

Salary information for the survey by NALP, an association for legal career professionals, was collected as of April 1, before large law firms paying the prevailing beginning salary of $160,000 began to cut pay. “This year’s report reflects what is likely to be the apogee of large firm salaries for the foreseeable future,” according to a NALP press release.

A cursory glance at Above the Law’s salary cut page will reveal that New York will secede from the Union sooner than New York will go to $190K. But there are other factors in play that will push down future median salary numbers.

More details after the jump.

Akerman Senterfitt is a Florida based firm, so — given the economy in Florida — it’s not all that surprising that the firm has decided to join the salary cutting party.

Multiple tipsters independently confirm that Akerman has instituted an across the board, 10% pay cut on all class years. Here is the internal email about the salary cuts obtained by Above the Law:

We are announcing today a 10% reduction in all associate salaries, effective immediately. This action is being taken in response to market conditions, which I know you are all aware of and which I need not belabor. I want to make it clear that our firm’s financial condition remains very strong, and even clearer as to how much we appreciate all your hard word and effort on behalf of the firm.

As previously announced, the associate bonus hours grid that we have used during the past few years has been eliminated. Instead, we will be carefully reviewing each associate’s performance at the end of this year as we consider paying merit-based discretionary bonuses to those meeting the established minimum qualitative and quantitative requirements.

As the email suggests, everybody is well aware of the terrible situation happening in the legal economy. But is the terrible economy forcing Akerman into this situation, or is the firm simply taking advantage of the difficult economic situation to roll back salaries?

After the jump, tipsters who have seen Akerman’s books claim that this is a salary cut of choice, not necessity.

For the past week, readers, commenters, tipsters, Steven Hawking and the Dalai lama have all been asking me what is going on with Skadden’s NALP form. If you look at the NALP directory of legal employers, you’ll notice that Skadden’s 2009 starting salary is listed as “TBD” — to be determined.

Well we finally have an official answer from the firm. The statement confirms what off-the-record sources and reasonably sane people have been saying all week: Skadden will still be paying $160,000 to first year associates.

After the jump, check out the firm’s salary statement.

Earlier this month, we told you that Hogan & Hartson was moving associates who are not on track to make their hours down to the firm’s lower paying 1,800 hours track. It appears that Wiley Rein is following that lead. We’ve received reports that Wiley is involuntarily moving associates not on track to bill 1,950 hours through the first quarter of 2009 down to its 1,800 hours track. The new base salary for those associates starts at $125,000.

The firm did not respond to Above the Law’s requests for comments. But Wiley Rein has long had two different tracks for associate compensation. According to the firm’s website:

Wiley Rein’s associate salaries are competitive with those paid by other major Washington, DC law firms. We remain committed to the goal of maintaining a healthy work environment, allowing our associates to make decisions in the office that have a positive impact on their lives outside the firm. We are also committed to allowing associates to choose their level of work and compensation.

In keeping with these twin goals, we have established a two-tiered salary structure based on billable levels— the current starting salary levels are $125,000 at the 1,800 billable hours level and $160,000 at the 1,950 level. Associates receive deferred compensation if they bill 1,950 hours. The firm also provides half of the deferred compensation amount for those who reach 1,875 billable hours.

Is this a salary cut? Tipsters weigh in after the jump.

Today’s evidence that the Biglaw paradigm is crumbling comes from the clients of Morgan Lewis & Bockius. The ABA Journal reports:

Among the sea changes is a reluctance by a number of clients, or even an outright ban, as far having first-year associates work on their matters, says [Morgan Lewis Chairman Francis] Milone in a wide-ranging interview with the Philadelphia Inquirer.

“It’s a trend,” he tells the newspaper. “We literally have some clients who are telling us they do not want us to put brand-new associates on their matters.”

On the one hand, you can take that comment with heavy dose of cynicism. It’s exactly the kind of thing a managing partner would say if he was laying the groundwork for an associate salary cut. For a more full example of how to cut salaries by making associates feel generally useless, check out Womble Carlyle.

After the jump, we see there are even more reasons to be skeptical about chairman Milone’s motives.

On Friday, Akin Gump announced it was unfreezing salaries for associates who were on track to make their hours. There was a lot of speculation on how many people would benefit from the pay raise, given the general slowdown in work. We’ve got some more clarification from our Akin Gump sources.

Above the Law has obtained the internal memo Akin Gump attorneys received yesterday, explaining the firm’s compensation structure for 2009. According to the memo, pay raises will be paid on a quarterly basis for attorneys on track to hit 2000 hours:

Associates and Counsel throughout the Firm who meet the targeted client hours (500 hours as of March 31, 2009; 1,000 hours as of June 30, 2009; 1,500 hours as of October 31, 2009; and 2,000 hours as of December 31, 2009) will receive a pro-rata distribution equivalent to one-quarter of the difference between an Associate/Counsel’s current salary and the salary to which the Associate/Counsel would have advanced without the freeze.

That means that an associate who isn’t on track to get a pro-rated portion of the raise this quarter can still make it up next quarter. If they do, they’ll get the both the second quarter raise and a retroactive first quarter raise. The memo explains it like this:

Payments will be based on the cumulative annual client hours as of the previous quarter, including up to 100 hours of pro bono annually. For example, an Associate with a pay class differential of $20,000 who works 500 hours in the first quarter, 400 hours in the second quarter, 700 hours in the third quarter and 400 in the fourth quarter (for a total of 2,000 hours) would receive a distribution of $5,000 on April 30th; no distribution on July 31st, two distributions of $5,000 each for a total of $10,000 on October 31st (one for the second quarter and one for the third quarter as the Associate was back on track for 2,000 hours), and one distribution of $5,000 on January 31st for a total of $20,000.

Aside from being low on hours, there are other people who will not be eligible for any raise. We check in on them after the jump.

Earlier today, we reported that Hogan & Hartson would be bumping a number of associates down to the 1800 hours track. We’ve collected some additional information on exactly what that means.

Hogan Chairman J. Warren Gorrell explained that Hogan associates would be bumped down to the lower track based on their hours over the past five months. He also confirmed what the 1800 hour salary scale looks like:

We are using the 5-month period beginning November 2008 and ending March 2009. The 1800 compensation level for the first year class is $145,000. And, associates who work above the 1,800 level will receive a pro-rated additional payment.

By including November and December, it looks like Hogan is getting a broader look at who has been utilized during the financial meltdown, and which associates simply don’t have any work.

It’s most likely not anybody’s “fault” if they don’t have work, and you have to think that a salary cut is better than a layoff. It’s also better than a “performance review” where the firm looks at your hours, tells you that you suck, and then says “Nothing to see folks. No global financial crisis here. Keep moving please.”

We fill out the scale after the jump.

There is a report in Bloomberg today, about the attempts some firms are making to end lockstep associate salaries:

The firms are responding to the plunge in corporate, real estate and finance work by overhauling compensation for associates, who often total as many as two-thirds of a firm’s lawyers. Some, like Orrick, are beginning to reward lawyers based on performance rather than seniority. Others plan to cut salaries for starting associates, just two years after top firms raised pay to compete for talent.

It looks like associates are dispirited, disorganized, and desperate to hang on to their jobs. If I was a professional business consultant, I’d think now is the perfect time to start stomping on dirty “workers” while they are down:

“In the current economic crisis, we see the final demise of the Medieval guild in the American legal profession,” said Joel Henning, a law firm consultant at Hildebrandt International Inc.

I am unarmed. Strike me down! Give in to your anger! With each passing moment, you make yourself more my slave.

Law firms have operated for decades with associate pay structures that don’t reward performance, Henning said…. “One of the best things firms are doing is breaking the ridiculous lockstep structure of associate compensation,” Henning said. “There is no other profession that operates that way.”

Young fool … Your feeble skills are no match for the power of the Dark Side. You have paid the price for your lack of vision!

But isn’t there something missing from this story? More after the jump.

We received 1,054 responses to Monday’s ATL / Lateral Link survey on when raises happen at your firms.

As expected, the overwhelming majority of you — almost 80% — said that your firms raise salaries in January.

But the rest of you are probably in for a wait. More than half of the associates who aren’t getting raises in February reported that raises will happen later, not earlier, at their firms.

Results: When Does Your Firm Adjust Salaries

Respondents reporting October raises included associates at Kenyon & Kenyon, Curtis Mallet-Prevost, Quarles & Brady, and a few boutiques. February raisers included Foley & Lardner, MoFo, Paul Hastings, Drinker Biddle, Akerman Senterfitt, and WolfBlock. According to attorneys at K&L Gates, Seyfarth Shaw, and Moore & Van Allen, March is the month for step-ups in salary.

Bear in mind, though, that some firms that announce raises in February or March may apply those raises retroactively to January 1. And, in a tough financial climate, we may see more firms delay raise announcements this year or perhaps, as one commenter predicts, announce raises of zero:

Remember you read it here first. At least 10 AmLaw firms will decide in January 2009 that they will not move salaries up to “the next class.” The stagnation in the market will - when combined with the trough in net earnings cause firms to say “we are holding you where you are - which is better than having to RIF 10-15% of you.” This will be the year the air goes out of the tire of associate raises.

Several firms did indeed freeze salaries during the last recession.

But that’s not to say that billing rates won’t go up. In fact, there’s a good chance they already have. Most respondents receiving raises in January said their rates go up during the fall — or even the summer — before:

Results: When Does Your Firm Adjust Billing Rates

—
Justin Bernold is a Director at Lateral Link, the sponsor of this Associate Life Survey.

Over the weekend, millions of Americans reset their clocks to mark the end of Daylight Saving Time. And millions of other Americans forgot to change their clocks, and showed up to brunch an hour early.

But sometimes, early is a good thing. In today’s ATL / Lateral Link survey, we investigate another time of change: the day your firm adjusts salaries.

At most firms, the new class of associates arrived in September or October. Some firms adjusted all of their associates’ seniority and salaries when the new first-years arrived. Most, however, will wait to adjust salaries, if not billing rates, until January 1.

At New York market rates, this means early raisers are actually paying associates $2,500 to $6,250 more in base salary this year than the rest of the market. (A third-year associate at a September raiser — now a fourth year — could actually make $8,333 more.)

So, does your firm observe Salary Saving Time, or have they already set your pay stubs forward?

Update: This survey is now closed. Click here for the results.

—
Justin Bernold is a Director at Lateral Link, the sponsor of this Associate Life Survey.

McDermott, Will & Emery has come up with a more creative way to deal with soaring associate salaries. The firm has announced that it will be creating a “second tier” of associates to deal solely with low-level tasks like, e.g., document review.

As Cal Law points out, hiring cheaper lawyers to do this type of work is nothing new; this type of stuff is the staple of contract attorneys in most biglaw firms these days. The new part is making these contract attorneys a lower class of associates, essentially making them “permanent contract attorneys”, as Cal Law puts it:

While some firms quietly turn to contract attorneys, or even ship grunt work overseas, McDermott, Will & Emery plans to create a new tier of attorneys — think of them as permanent contract associates — to handle lower-end tasks at lower billing rates.

…

First-year associates at big firms now earn $160,000. Meanwhile, electronic discovery has dramatically increased the amount of basic work that usually goes to those high-priced associates.

“This is a topic of great importance, since the cost of document review has become intolerable for everyone,” said David Balabanian, the head of Bingham McCutchen’s litigation group.

While hiring contract attorneys is nothing new, creating a second class of full-timers is.

[The Recorder via Cal Law]

Is this a good or bad thing? On the one hand, it increases the competition even more for the “real associate” positions and institutionalizes to an even greater extent the law school tier system into biglaw law firms.

On the other hand, it may be beneficial to those attorneys now doing the contract work. It will establish them as associates in the firm, even if not on the same level as the top tier associates. They will likely receive things like benefits. The top tier associates will likely do more substantive work sooner. And the clients won’t find themselves paying top tier prices for stuff like document review, as still occasionally happens.

So what do you guys think? Will other firms adopt this model? Once again, it makes sense to us.

And hey, L2L, maybe you should apply.

Related:
Firm to Fill Cheap Seats [The Recorder via Cal Law]
McDermott To Create a New Class of BigLaw Attorneys [WSJ Law Blog]