Oh no. Is it really time to crank up the salary freeze watch again? I thought that the big question this winter would be whether firms that froze salaries last year would be unfreezing pay for 2010. And whether or not the raises were a “true up” raise that put people up to where they would have been absent last year’s freeze.

Instead, could we be looking at a winter where firms that did not freeze last year decide to freeze this year? A tipster reports on some disturbing news coming out of Covington & Burling:

Covington just announced salary freeze for all offices but NY; NY TBD. All-associates meeting.

Above the Law reached out to spokespeople at Covington. Read the firm’s statement after the jump.

In July, Morgan Lewis & Bockius announced that it would be ending lockstep compensation for its associates in 2010. At the time, the firm furnished this statement to Above the Law:

“We’re running our own business and focusing relentlessly on client relationships,” said Francis M. Milone, Chair of the Firm. “Doing so responsibly means continuing to reduce expenses, committing to the people in whom we are already invested, and looking at compensation across the board to ensure our structure matches the reality the entire legal industry must face.”

The July announcement was the culmination of the effort made by MLB and its chairman, Francis Malone, to reform the Biglaw business model. Back in April, Milone gave an interesting interview to the Philadelphia Inquirer:

Question: Law firms are still very profitable. Why do they need to downsize?

Answer: You have to make a judgment about whether you can keep people busy going forward. It is not healthy for a lawyer to not be busy, to have free time on his or her hands. You don’t grow, you don’t develop, you’re not happy.

And from a cultural perspective, you don’t want to build a firm that culturally is populated by a lot of people, or too many people, who don’t have enough to do.

Q: Is that the only reason?

A: The other piece of it is the feedback we got from clients. Because they’re looking at the way they want law firms to act. They’re not going to be as willing to pay, frankly, to train new lawyers. So it’s going to be harder to find things for new lawyers to do. And when we’re paying new lawyers $160,000 and clients don’t want to pay for them, you’re putting them in a position where there may not be a lot of things for them to do.

Well, 2010 is almost upon us. But MLB is suddenly not so excited about ending lockstep compensation. Milone conducted a firm-wide video conference yesterday, and tipsters report his enthusiasm for ending lockstep compensation was noticeably lacking.

Details and a statement from the firm, after the jump.

The Great Recession has been tough for many different types of firms — and that even includes intellectual property firms. During the past year, IP-focused shops have cut back on hiring, slashed salaries, and lost key partners to larger firms.

A few recent developments at Finnegan Henderson, the D.C.-based IP powerhouse, reflect the new realities. Multiple sources report the following:

1. Earlier this week, at an “all associates” meeting, the firm announced that it is freezing associate salaries.

2. At the same meeting, the firm announced that it is reducing first-year associate salaries from $160,000 to $145,000 (in all offices).

UPDATE: We understand that Finnegan has frozen support staff salaries as well.

Two additional items about Finnegan, after the jump.

It’s time for a quick follow-up on yesterday’s “all associates” meeting at Winston & Strawn. Alas, it was a bit anticlimactic. “Just a way for the firm to ruin everyone’s weekend,” quipped a tipster.

According to our sources at the firm, this is what associates were told:

1. Compensation at Winston will remain competitive; no salary cut will be imposed at this time. (The firm froze salaries earlier this year.)

2. Layoffs were necessary, and they have been conducted, but hopefully they’re a thing in the past (although nothing is guaranteed on this score).

So, exactly how many people have been laid off by Winston?

These days, salary cuts at large law firms appear to be more popular than salary freezes. A salary freeze may actually be “good” news to associates, insofar as it’s not as harsh as an outright salary cut.

On the other hand, having your salary cut is better than being laid off — at least according to ATL readers. In our recent poll on the issue, 58 percent of you said a firm should cut salaries for all associates in order to save jobs. Yesterday we heard from a victim of Cadwalader’s latest layoffs — the firm tried to cast them as “sabbaticals,” but please see our updated post for a reality check — who expressed anger that the firm didn’t try to cut salaries across the board to avoid cuts.

We try to keep our coverage of salary cuts and salary freezes as up-to-date as possible. A quick reminder: if you have information that we haven’t previously reported (do a site search to check), please email us (with either “Salary Cut” or “Salary Freeze” in the subject line). Thanks.

Update: Pay cuts — they’re not just a Biglaw thing. Midsize firms are contemplating them too. Hello, deflation!

Midsize Firms Weigh Salary Cuts [The Recorder via Law.com]

At the beginning of 2009, we were tracking salary freezes as law firms across the country froze their salaries at 2008 levels, rather than instituting lockstep raises based on seniority. Our most recent salary freeze round-up was in February. (We also acknowledged those that had raises as normal.)

Since then though, the salary freeze watch has been replaced by the salary cut watch. Rather than keeping salaries at 2008 levels, some firms are cutting back to 1998 levels.

Okay, not really. Salaries aren’t quite in line with the days of Ally McBeal, but some pay stubs are starting to resemble those of 2005.

So what about those firms that instituted “slurpee freezes” back in January? These firms said they were keeping salaries at 2008 levels, but that they planned to revisit the decision later in the year. It was assumed at the time that they would be revisiting in order to raise salaries, but that has not been the case.

If your firm hasn’t “revisited” the decision, that might be a good thing. None of those with slurpee freezes decided to raise salaries, though quite a few cut them. Specifics after the jump.

At what point does a salary freeze start to feel like a salary cut? Staff at O’Melveny & Myers are about to find out. O’Melveny just announced a new salary ice-age for its staff. Above the Law obtained this internal memo sent to O’Melveny staffers:

We are committed to taking proactive steps to maintain our financial strength in the face of unprecedented economic times. As part of this effort, we continue to look at how we can prudently and efficiently manage our costs and have therefore decided that there will be no salary increases this year and the performance evaluation cycle will be extended from 12 months to 24 months. Your performance evaluation will now cover the period between July 2008 - July 2010. We will consider salary increases at the end of the new performance review period in July 2010.

O’Melveny has already been through layoffs. In March, 200 people were let go, including 110 staffers. So on the one hand, a salary cut is a lot better than being out on the street.

On the other hand, staffers don’t make much to begin with, and nobody wants a static salary. O’Melveny staff better start rooting for the rest of the American economy to continue its deflationary trend.

O’Melveny confirmed that the freeze only applies to staff.

Will we see more ice-age freezes this summer? Stay tuned.

Check out the full firm statement after the jump.

Earlier: Nationwide Layoff Watch: O’Melveny Fires 90 Lawyers, 110 Staff

As many of you know, Jones Day guards its salary information as if the firm is protecting the Holy Grail. Compensation is kept confidential and talking about what you make, even to colleagues, is generally discouraged.

But no firm is immune from the global economic crisis. Today, a piece of information leaked out of Jones Day regarding a freeze on staff salaries:

In responding to these kind of challenges, the Firm has always been concerned about the long-term and about what is in the best interests of our clients, our lawyers, our employees, and the Firm as a whole. Thus, we consistently try to make decisions that are aimed at protecting those long-term interests. That process requires that we adjust to meet new challenges, and it means that we must be prudent in managing our costs and expenses to ensure that we maintain our solid financial foundation.

Consequently, as the year has unfolded, we have examined all of our spending and are making adjustments in a number of areas. As a part of that examination, and after careful consideration, we have made the difficult decision that salaries for all legal support personnel and staff in all Offices and Departments of the Firm will remain at their current levels through June 30, 2010, and that no Year End Payments or discretionary bonuses will be paid in 2009. We know that these decisions may be disappointing for you and your families. We also are confident that you share our commitment to the long-term success of the Firm and understand that these decisions are one part of ensuring that success.

As we’ve seen around the legal industry, employees — be they staff or associates — are generally willing to suffer a pay freeze if it means they can hang onto their jobs.

But will the pay freeze help Jones Day staff keep their jobs? Notes about the Jones Day performance review after the jump.

There is late breaking news from Skadden tonight. Apparently the firm has decided to freeze salaries on its counsels. Here is the memo Skadden counsel received:

TO: Counsel

RE: Compensation

Given the current economic conditions and the level of activity within the firm, we have decided that we will not be increasing salaries for counsel in 2009. As always, payment of discretionary bonuses will be contingent upon levels of activity in the Firm’s practice areas, the economic environment as it affects our Firm and individual performance.

We are grateful for your continued commitment to the Firm.

That timing could have been better. But we understand that counsel pay has historically been decided on May 1st, so the firm needed to make a decision.

Skadden has not frozen salaries on associates, and the firm paid top-of-the-market bonuses to its personnel.

The firm has avoided laying associates off during this recession, but Skadden’s Sidebar Program allowed approximately 125 attorneys to take a year-long deferral from the firm.

Earlier: Associate Bonus Watch: Here Comes Skadden
Skadden’s Sidebar: Phase One Complete

This winter, a lot of firms announced “slurpee salary freezes.” The slurpee firms told associates that they would reevaluate their salary structure depending on market conditions. At the time, few people believed them.

But on Friday, Akin Gump did reevaluate its compensation: and it is going up! A memo went around to all associates late, Friday afternoon:

In order to give us a greater opportunity to evaluate Associate and Counsel compensation in light of the challenging economic times, the Firm deferred the decision on Associate and Counsel compensation for 2009 until the end of the first quarter. After careful consideration, I am pleased to announce a program that we believe allows us to be both prudent in these extraordinary times and responsive to our Associates and Counsel.

Of course, there are complications. More from Akin Gump after the jump.

Yesterday, we reported that Allen Matkins is cutting associate salaries. We don’t think that Allen Matkins will start a deflationary trend back towards $145K. But The Recorder reports that top firms are “salivating” for at least one market leader to make it okay for top firms to cut salaries:

But it’s clear that firms high on the Am Law 100 list are salivating for a salary cut as well. It has been a sure-fire conversation starter for months now. But so far, no chairman or managing partner has gone on the record saying he or she wants to cut salaries, or by how much.

A firm in the top 10 to 15 will likely never do it, said consultant Peter Zeughauser. It’s the firms in the top 30 or 40 that may move the market, and they will do it only if they’ve “exhausted all other options.”

Why the lemming-like behavior? Details after the jump.

Allen Matkins, a mid-sized California firm, is the latest firm to offer the “hemlock package” of layoffs and salary cuts.

The layoffs at Allen Matkins were relatively small. Only about ten people, six of whom were associates, according to ATL tipsters. But the salary cuts were more substantial. According to one tipster:

First year salary has been reduced from $160K to $145K. A number of other associates (excluding first years) were informed that their salary would be reduced by 15% or 30%. Those associates were told that they were selected to receive “adjusted” compensation based on their hours, although the actual method for determining which associate would be subject to this salary adjustment was not disclosed and remains unclear.

Other tipsters weigh in after the jump.

We love to point out when our commenters point us in the right direction. Over the weekend, somebody placed this comment in the recent Law Shucks post:

Hunton & Williams is planning big layoff in week ahead. The firm has been laying off PARTNERS in stealth moves during the past two months and a firm-wide meeting is scheduled for this week. Expect big staff cuts since those attorneys are no longer around.

In response, one of our tipsters did some checking:

Saw a comment under the law shucks story that Hunton was having a firm-wide meeting this week. Came in and checked today, [rooms have been reserved] by Human Resources from 11:30 to 1:00…. on Friday.

Hunton & Williams did not respond to our requests for comment. But there are a lot of issues that the firm might choose to address this coming Friday.

We’ll get into our other tipsters’ reports after the jump.

Today, McDermott Will & Emery completed its “2008 compensation cycle.” There is (shockingly) some good news for associates at the firm.

According to a firm wide memo:

In recognition of strong performance, the Committee approved 2008 bonuses that are in keeping with the Firm’s merit-based approach to total compensation and that in many cases exceeded the market.

According to sources we’ve spoken with over the past few weeks, this is largely true. While MWE’s bonuses were nominally half-Skadden, high performers and top billers report that they received substantially more money than that. One tipster reports:

Pretty much everyone to whom I talked was pleasantly surprised. We pretty much expected them to go with the Cravath scale, but they actually went above by a bit. [For first years] the class the median was $21,250, the average was $22,266, and the high was $40,000.

It gets progressively better up the scale, with some 4th years reporting that they received as much as $60,000 in bonus.

We understand that these figures include the $10,000 bonus advance MWE associates received in December.

Of course, stub-first years didn’t receive any bonus. But given the fact that McDermott recently laid off 60 associates, the stub-first years that are left have to be pretty happy to still have a job.

But there is some bad news too. Details after the jump.

Admit it, you knew this was coming. We’ve got a firm capitulating to the market realities and cutting first-year associate salaries.

McGuire Woods chairman Richard Cullen left a voice mail (!) to his attorneys last night. He let everybody know that the firm was cutting 10% off of first-year salaries, from $160K to $144K.

UPDATE: There is some variation in starting salaries by office. New hires are making $144,000 in Northern Virginia, D.C., Los Angeles, Chicago, and New York, while new hires in Richmond, Charlotte and Atlanta are making $130,500.

But that is not the only cut future McGuire Woods juniors can expect. Cullen also told the firm that the 2009 summer program is being scaled back to an eight-week affair.

Salaries for all the other associates at the firm have been frozen at 2008 levels.

But, and this is important, no layoffs at McGuire Woods.

Richard Cullen did not respond to an immediate request for comment.

For weeks, the ATL commenters have been claiming that “no first-year attorney is worth $160,000!!!!!!!!!!” At McGuire Woods, that is now true. And there are a lot of laid off first years who would gladly take a $144,000 a year job.

We’ve seen a lot of contraction in the legal industry. But now we could start to see serious deflation in the industry.

After yesterday’s staff layoff news, it may come as no surprise that Buchanan Ingersoll & Rooney is the latest firm to freeze associate salaries for 2009. From a tipster there:

Buchanan Ingersoll announced a salary freeze for 2009 for all associates except “unusual” cases, e.g., laterals who were brought in at what is now perceived to be slightly undermarket salaries last year may get bumped a little. Several other raises on a case-by-case basis, but they will be few.

Better a freeze than a lay-off, we say. We’ve updated the list of firms that have chosen not to institute class year raises. The list is now 47-firms strong. Check it out, after the jump.

Last week, Pillsbury was busy throwing mama from the train. But underneath the layoff news, the firm instituted other cost cutting measures. On Tuesday, Pillsbury decided to freeze salaries.

Pillsbury is one of the firms with a two tiered associate payscale. A tipster reports that a number of Pillsbury associates were already receiving below market pay, before last week’s freeze:

[I]n June of 2007, Pillsbury decided to meet the Biglaw salary raises that occurred at the time (albeit they were a later mover on the raise issue). However, they also said in June 2007 that new requirements were tied to the salary increases. Departing with prior firm practice, any associate who did not meet a minimum of 1800 billable hours for 2007 would be advanced in class year, and would be advanced in their billing rate, but would be “held back” in salary step increases.

The 2007 policy was made less onerous because there was an easy way for associates to make that money back in 2008:

If the associate that was “held back” in pay for their 2007 numbers billed 1950 hours or above in 2008, they would (a) be advanced in class and salary to become equal again to their actual class year, and (b) would be given a “true up” bonus for 2008 whereby they would be paid the difference in salary they were supposed to be making during 2008, but did not because they were held back in terms of pay.

Pay plans made in 2007 are about as relevant as Adrien Brody standing on the same stage as Robert DeNiro and Anthony Hopkins. It’s nice for context, but painfully out of place given current standards.

After the jump, we look at what Pillsbury is doing now.

Yesterday When I was a kid, I used to steal the Reese’s Peanut Butter cups from my younger sister’s Halloween bag, eat them, place the empty wrappers back in the bag and steal away into the night. My thinking was that at no time would my sister discover that the wrappers were empty, and if she did, well, the worst that my parents could do was take away my Nintendo.

Last night, attorneys at Morrison & Foerster opened up what they surely hoped would be their adult goody bag — an email from firm chair Keith Wetmore, titled “2008 Bonuses and 2009 Compensation ” — only discover that they, too, were faced with empty wrappers.

Naturally the email announced the usual bad news, including “simply unknowable” 2009 bonuses and salary freezes for 2009. The exception is for New York, where increases will be paid as bonuses if associates, among other things, are able to decipher the announcement itself:

In New York, however, where all major New York firms implemented step increases this year, the step increase will be paid as a Contribution Bonus in January 2010 in an amount equal to the step increase that would otherwise have applied for that class. The Contribution Bonus will be paid to those New York-based associates who progress with their class and record 1950 Efficient Legal Service Hours (see Compensation Brochure), subject to the usual prorations, and who are employed with the firm on the date the Contribution Bonus is paid.

But the email also contained a chart revising and lowering the already announced 2008 Evaluation Bonuses, which comprise the lion’s share of the total bonuses.

A tale of betrayal and woe, plus the MoFo compensation email, after the jump.

This morning Allen & Overy quit beating around the bush and sent a firm-wide email announcing that there’d be some changes around there — major changes. It was with a heavy heart that firm managing partner Wim Dejonghe and senior partner David Morley inflicted a world of pain on its personnel:

Since the beginning of December, the Board has been conducting a thorough review of our business in response to the unprecedented economic conditions in which we are now operating. The inescapable and reluctant conclusion of that review is that there is simply not enough work to keep all of our people busy, and we do not see that changing in the foreseeable future.

In the beginning, Allen & Overy said: let there be layoffs, half in London, the rest from the network:

• Partners - A global reduction in partner headcount of approximately 9% (47 partners) and around a further 7% (35 partners) subject to equity adjustments. Around half of those affected will be London partners. This process is at an advanced stage and will be completed by the end of this financial year on 30 April.

• Other fee earners - A proposed 9% reduction in numbers of other fee earners globally. Around half of these are proposed to be in London, where the redundancy programme we undertake is likely to result in approximately 100 other fee earners leaving the firm. This will be subject to local employment processes which will commence immediately.

• Support Staff - A proposed 9% reduction in support staff headcount. Again, around half of these people would be in London, where roughly 100 staff are likely to be affected. This will also be subject to local employment law and, where appropriate, consultations, which will commence as soon as possible.

And then the firm created a firmament in the salaries and billable hour rates:

• Pay - For 2009 pay will be frozen for all staff globally - fee earning and support staff alike, subject to local employment law, where applicable.

• Fee rates - Acknowledging the impact of the global financial crisis on the firm’s clients, our headline billing rates are to be frozen at 2008 levels until further notice.

A spinoff, the full email, and whether Deirdre Dare is causally related to this mess, after the jump.

The song “Cleveland Rocks” always seemed like a bit of a stretch to me, and yesterday’s events did nothing to dissuade. We’ve received several reports that 400-attorney Midwestern firm Thompson Hine has been conducting layoffs in its Ohio offices, including its Cleveland one:

12 lawyers, 5 paralegals, and 29 secretaries.

Another tipster reports that the layoffs number “at least 50.” Apparently three first year associates were among the carnage.

If this post sounds like run-of the mill layoff story about a small firm in a distant kingdom, you’re absolutely right. Except for the part where Thompson Hine takes away its 2007 salary bump and employs the second most terrifying economic deflection tactic we’ve seen yet:

word is that the firm has cut every associates’ salary by $20,000/year.

The firm has not responded to our request for comment, but if true, Thompson’s use of the Salary Cut marks the second appearance of this dastardly weapon since the economy tanked. Recall that last week, WolfBlock chopped associate salaries by 10%.

While the threat of the Salary Cut is contained at this time, let us pray that this spawn of an unholy alliance between the Reverse Perk and the Salary Freeze does not become epidemic.

Update: The firm has confirmed the pay cut and layoffs, to Am Law Daily:

Earlier this week Cleveland’s Thompson Hine told its associates and other non-partner lawyers that it will impose an across-the-board $17,500 base salary reduction. Those lawyers will, however, be able to earn back some or all of that sum as a bonus if they bill at least 1,750 hours this year….

The firm also announced layoffs this week, eliminating the jobs of 12 associates, five paralegals, and 29 secretaries. Furthermore, it has pushed back the starting date for its incoming first-year class to January 2010.

Thompson Hine M.P.: Associate Pay Cut Expected to Save Jobs [Am Law Daily]