Skaddenfreude

Back to the Future 2 DeLorean time machine.jpgWelcome to BACK TO THE FUTURE. In this occasional ATL feature, we’ll step into a time machine and take a look at what the legal profession looked like at some point in the past.

In a post about staff layoffs at Fried Frank, a commenter drew our attention to this fascinating 1990 article from the New York Times. It seems that the commenter was trying to challenge the recent claim by firm chair Valerie Ford Jacob that the firm has never laid off attorneys. The NYT piece — by David Margolick, former national legal correspondent for the Times, now at Portfolio (and also one of Kash’s journalism professors at NYU) — mentions Fried Frank as a firm that may have engaged in “stealth layoffs.”

Margolick’s article doesn’t use the term “stealth layoffs,” but the phenomenon it describes is essentially identical to what we’ve been reporting in the pages of ATL lately. The article begins:

They were the legal profession’s gilded generation, an army of lawyers without limits. As law students, they were wined and dined and wooed by the most prestigious law firms in New York. Once hired, they began settling into a frantic but fantastically lucrative life. It was a life of glamour, prestige and, they assumed, stability.

Now, only a few years later, dozens of these lawyers have had a crash course in the realities of modern Wall Street practice. For the first time in their lives – lives of success atop success – they find themselves in an unusual position. They have been fired.

As the sour corporate climate reaches large law firms in New York and to a lesser degree cities like Los Angeles and Chicago, a bubble has burst. With business down, particularly in corporate work, real estate, and mergers and acquisitions, several of the most famous law firms have dismissed substantial numbers of lawyers, particularly those in the early years of their careers.

This article could have been written yesterday. But it was actually written over 18 years ago; the dateline is August 12, 1990. The more things change, the more they stay the same.

More excerpts and discussion — including a brief comment from Margolick, plus information about what junior associates earned back in 1990 — after the jump.

double red triangle arrows Continue reading “Back to the Future: Stealth Layoffs in 1990″

100 dollar bill Above the Law Above the Law law firm salary legal blog legal tabloid Above the Law.JPGOne of the “perks” of working in Biglaw is the ridiculous amount of money that gets direct deposited into your account every two weeks. Even if you work for a firm that pays below market rate, your earnings still beat the bag out of what they pay at the local 7-11.

Can you imagine having to take a second job to make ends meet?

Welcome to the world of an assistant prosecutor or public defender. The National Law Journal has some disturbing stories of attorneys putting in double duty to pay off their loans:

“I have lawyers delivering pizzas, I have another lawyer umpiring and another bartending,” said Frank de la Torre, chief assistant at the Broward County Public Defender’s Office. “Many of us could be making more money in private practice, but obviously those of us who make a career in the field of indigent defense do it because we love it and we believe in the Constitution.”

The sad thing isn’t just that they have to take these jobs, it’s that they make more money — bartending or whatever– than they do in the legal profession.

We’ve covered the craptistic pay for government lawyers in the past. Many public attorneys used to be able to pick up some real estate or T&E work on the side. Today? Not so much.

Keep on grifting ’till you drop, or it’s back to the crumbs from the table after the jump.

double red triangle arrows Continue reading “Do You Want Fries With That Insanity Defense?”

recession california associate pay raises.jpgThe top 25 California law firms are staying in lockstep with regard to associate pay: $160K for first years, $210K for fourth years, $265K for seventh years.
According to The Recorder (via Law.com), only Sedgwick, Detert, Moran & Arnold paid below the market rate. They pay $130K to first years and only go to $197K for seventh years.
For the most part, firms have to play “follow the salary leader” in order to draw top talent. But in these times, some firms are desperate to cut back on associate compensation any way they can.
The idea floating around is to abandon lockstep salary progression based on year, and move to performance-based pay raises. Manatt, Phelps & Phillips has already abandoned automatic pay raises:

“I actually think the system in practice is very fair because it allows for those people who are overachievers to really be valued at what their skills are worth,” said Diana Iketani, the firm’s chief recruiting officer. On the other hand, she said, it reduces pressure on associates who would rather pace themselves or have different priorities.

Some firms that are not following suit, after the jump.

double red triangle arrows Continue reading “California Law Firms Still In Lockstep: For Now”

pyramid scheme capstone.jpgEarlier today, the American Lawyer published a report detailing declining profit margins in the legal industry.
It is nice to see that somebody commissioned an entire report to figure out obvious facts like “the first half of 2008 looks very different from the previous six years” and “[t]he slowdown is hitting the most profitable firms the hardest.” In other breaking news, Britney Spears’s career has hit a bump in the road.
Instead of a simple doom-and-gloom economic report, Am Law columnist (and Biglaw banker) Dan DiPietro offers this proposed solution to all the law firm ills: fire the associates!

“There is a silver lining. A bad year (and the numbers suggest 2008 will be even more trying than 2001, when partner profits were down slightly) will enable firms to take steps that partners would resist in a good year — winnowing out unproductive lawyers and applying greater discipline to expense control.”

Silver lining?
Partners, pundits, and others who like to play McKinsey & Co. on the weekends always suggest this form of fat cutting in tough economic times. But it is a disingenuous solution.
Read why, after the jump.

double red triangle arrows Continue reading “Open Thread: Blame The Associates”

avatar Sophist ATL Idol.jpg[Ed. note: This post is by SOPHIST, one of the finalists in ATL Idol, the "reality blogging" competition that will determine ATL's next editor. It is marked with Sophist's avatar (at right).]
On Tuesday, American Lawyer published a follow-up report to their overall associate satisfaction survey, released last Friday. This report ranks midlevel associates’ satisfaction with their pay packages. Not surprisingly, Wachtell, Lipton, Rosen & Katz midlevels were most satisfied with their overall compensation, thanks in part to bonuses which ranged from $175,000 to $215,000.
Meanwhile, back on Earth, associates still lucky enough to have jobs were less than thrilled with their pay. Overall, midlevel salary satisfaction has only risen 1% annually since 2006.
The new numbers are surprising to some because top firms in other major markets are now matching the base compensation awarded in New York, while New York associates still receive higher bonuses to keep their landlords at bay.
According to American Lawyer, midlevel associates understand that extra compensation results in longer hours, less partner contact, and decreased job security. As one Jenner & Block associate put it, “They’re not raising because they value us. We’re just the collective beneficiary because the firm needs to keep up in the market. It’s a back-handed compliment.”
Perhaps it is time to use the lysine contingency to control the law student population in order to make firms care about associate retention.

100 dollar bill Above the Law Above the Law law firm salary legal blog legal tabloid Above the Law.JPGEarlier this month, there was some discussion in the comments about law firms possibly cutting associate salaries to cope with the economic downturn. The scenario sounded far-fetched — but maybe it’s not as far-fetched as some might have hoped.
Look, we aren’t saying that the sky is falling. There’s a world of difference between a law firm based in Fort Lauderdale, with 128 lawyers and extensive exposure to Florida real estate, and the giants of Biglaw, with hundreds of millions (or even billions) in revenue, profits per partner well into the seven figures, and diversified practices.
But still, nobody would call this good news. From the Daily Business Review:

Attorneys at Becker & Poliakoff are being hit with a 12 percent pay cut for the foreseeable future to help the real estate-dominated firm deal with a drop in profitability and delays in collections.

Becker & Poliakoff is the first major South Florida firm to turn to its lawyers to make cuts to help it deal with the economic slowdown and real estate downturn. Other firms have trimmed staff jobs, including paralegals and secretaries, and cut back on other expenses to help cope with the economic landscape.

Alan Becker, the firm’s managing shareholder, informed attorneys and support staff about the pay deferment plan via podcast Wednesday. The cut took effect Thursday and affects only lawyers. No layoffs are expected.

So that’s the silver lining to the proverbial cloud. You’ve suffered a 12 percent haircut on your salary, but at least your job is secure.
We don’t know what the Becker & Poliakoff pay scale is, but we’re guessing it’s well below the $160K scale. Back in 2003, it looks like their starting salaries were in the $63K-$70K range.
But just out of curiosity, what would Biglaw salaries look like if they were trimmed in this manner? If a 12 percent reduction were applied to the first three steps of the standard New York pay scale, salaries would go from 160-170-185 to 141-150-163.
More discussion, after the jump.

double red triangle arrows Continue reading “Nationwide Pay Raise Cut Watch: NY to 141?”

Sullivan Cromwell new logo Above the Law blog.jpgThe Brokeback Lawfirm scandal folded its pup tent months ago. But there’s still stuff to cover at one of ATL’s favorite firms, the venerable Sullivan & Cromwell.

Here are two items. First, from a tipster:

If I recall correctly, Sullivan & Cromwell sent out a memo in December or January saying that even though they paid the “special bonuses” in December, they still intended to pay additional profit-sharing bonuses in February. [February is over] and as far as I know, not a word from S&C. Can you guys please make a big deal over this?

The tipster’s memory is slightly off. From chairman H. Rodgin Cohen’s earlier bonus memo:

[T]he Firm will pay senior associates compensation in addition to salary and bonus through our new Senior Associate Supplemental Bonus Plan (“the Plan”). We have decided to accelerate payments under this new Plan to result in the following [market-matching bonuses] being paid on December 14 to our senior associates, with final supplemental payments to be made in the Spring of ’08.

We are now officially into spring 2008. So ATL hereby “make[s] a big deal over this.” Has S&C paid the supplemental bonuses to its senior associates? If so, can someone please give us the skinny?

Second, here’s an interesting rumor of a partner departure from S&C, from a different tipster….

double red triangle arrows Continue reading “What’s Up at Sullivan & Cromwell?”

Thelen new Thelen Reid Brown Raysman Steiner LLP Abovethelaw Above the Law legal blog tabloid.jpgThe rumor making the rounds of lawyer and staff layoffs at Thelen Reid Brown Raysman & Steiner is true. We just spoke to Thelen’s co-chair, Stephen V. O’Neal, who provided confirmation and details.
The firm is in the process of laying off 26 associates and 85 staff members, on a firm-wide basis, “in response to recessionary pressures.” (Unlike President Bush, Mr. O’Neal was not afraid to use the “r” word.) Thelen has approximately 600 lawyers, per its website, so the cuts amount to roughly 4 percent of total headcount.
With respect to the location of the affected lawyers, the cuts affected all major offices. With respect to seniority — one source told us that some first- and second-year associates were fired — Mr. O’Neal said that “some were fairly junior, and some more senior.”
In terms of practice areas, Mr. O’Neal said the layoffs were spread out among groups, but with “some areas more impacted than others,” including certain parts of capital markets and cap-markets-related real estate work. He noted that other practice areas are “thriving and increasing in scope,” including renewable energy, cross-border M&A, China practice, litigation, and workouts / bankruptcy.
With respect to staff layoffs, Mr. O’Neal explained that they are due in part to the economic climate, but in part due to post-merger staff redundancies. The merger of Thelen Reid and Brown Raysman took place in late 2006, making the consolidated firm a little over a year old. But the firm did not do much cutting of staff in 2007.
Last year “was not a year when we tried to make deep cutbacks in anything, even though we had combined two good-sized firms,” explained Mr. O’Neal. “It was a year of building, coordinating, and consolidating. We wanted to understand how best to organize this new entity.” Now that the firm has a better understanding of its staffing needs, and is in the process of consolidating multiple offices in the same cities (e.g., New York), it is reducing staff redundancies.
As for associate severance packages, Mr. O’Neal stated that firm provided a “market-level” package. We floated three to four months as our understanding of market, and he said that the firm is “in that ballpark.”
“We are anticipating a profitable 2008,” said Mr. O’Neal. “We are being prudent businesspeople, and when you are dealing with recessionary pressures, you adjust your business so you will have — and maintain — a strong level of profitability, notwithstanding those pressures.”
We thank the firm for the information and candor with respect to the layoffs (i.e., not casting these departures as “performance-based”). If you have more information, feel free to email us.
Updates: A few additional nuggets:

1. As noted in the comments, total headcount includes partners and counsel, so the percentage of associates laid off is higher than 4 percent. Some of you suggest it’s around 10 percent.

2. We’re a little annoyed at Legal Pad for the lack of an ATL shout-out — in both the blogosphere and the MSM, it’s proper form to credit and/or link to the source that breaks a story first (even if you were working on the same story too) — but we’ll link to them anyway.

They have more on the Thelen layoffs here. Much of the info in their post appeared previously in ours, but they do add that the firm “is also trimming its summer program from eleven to eight weeks and is pushing the start date for first-years from September to January.”

3. A source at the firm tells us that the severance packages were in the two- to three-month range.

Earlier: Prior ATL coverage of layoffs (scroll down)

Barack Obama Senator Barack Hussein Obama Above the Law blog.jpg[Ed. note: Yesterday's guest post about how Barack Obama's tax plan might affect Biglaw associates, authored by Ted Frank, generated a record number of comments on ATL: 564 (and counting). It also generated lots of reaction throughout the blogosphere (links collected below). So we thought we'd invite Ted to do a follow-up.]
Here it is. Ted wrote it in response to the following reader email, which makes many of the arguments that surfaced in the 564+ comments. From an Obama defender:

I’m sorry, but you are losing your credibility by posting this false propaganda on Obama. Look at Obama’s website. It clearly states, “Asked About Raising the Cap, Obama said, ‘You Might Have the Equivalent of a Doughnut Hole’–NOT That He Would Completely Remove the Cap.” Obama “has stated in various venues that ‘his inclination… has been for a ‘donut’ where the uncapping would take place above some threshold income level — probably around $200,000 or $250,000′ his economic adviser Austan Goolsbee said in an email. A donut would protect a certain portion of income (e.g., between $100,000 and $200,000) from the payroll tax and could be phased in over decades.”

In addition, that “$34,000 paycut” in the post title is misleading. Even if all your assumptions were correct (which they weren’t), the after tax pay cut under Obama is < $20,000. I love your site, but please correct this ridiculous false article before you lose all credibility.

And now, without further ado, Ted Frank.
* * * * * * * * * *
First, as I show in the spreadsheet, a $20,000 tax increase is the equivalent of a $34,000 before-tax paycut for a New York City resident, which would have the same after-tax effect. The $34,000 figure is accurate: that’s just math. The Obama tax plan would have the same effect on a NYC fifth-year associate being paid market as a $34,000 paycut.
Obama has never said he will have a doughnut-hole, only that his SS tax could include a doughnut-hole. When Hillary Clinton attacked Obama at the November 15 Nevada debate for wanting to eliminate the cap, Obama didn’t say that the attack was incorrect; he defended the policy because eliminating the cap would only affect what he called the “upper class.” The press has accurately reported that Obama has also proposed eliminating the cap; even Obama’s own website links to a thinktank’s analysis of the benefits of a cap elimination.
It would be really easy for Obama to promise to include a “doughnut-hole” or to not eliminate the SS-tax cap. He certainly hasn’t been afraid to promise drastically expensive programs of new spending or even tax giveaways to large swaths of the population who aren’t paying much tax now.
But when it comes to Social Security, Obama is suddenly vague; when he does discuss details, it is to cite examples (e.g., Warren Buffett) that could not be accomplished without eliminating the cap entirely. And the only reason a politician acts that way is because he supports the more drastic, politically unpopular plan, but doesn’t want to get tagged with it before the election, and will say after the election “I only said I would ‘consider’ a doughnut-hole.”
How Barack Obama’s Tax Plan Will Affect You [Microsoft Excel file]
Additional discussion and links, after the jump.

double red triangle arrows Continue reading “NY to… 147K? More About Barack Obama’s Tax Plan
(Or: Time to make the donuts?)”

Barack Obama Senator Barack Hussein Obama Above the Law blog.jpg[Ed. note: Today we bring you some "news you can use": a practical look at how political choices might affect your personal finances. This post is by Ted Frank, who blogs at Overlawyered.com and PointofLaw.com, and who has guest edited ATL in the past. Take it away, Ted.]
BigLaw lawyers love Obama. If one searches by law firm various databases on-line for campaign contributions, one sees an overwhelming sea of blue, and most of it to Obama.
But how will Obama affect BigLaw wallets? On Above the Law, we regularly see commenters threaten to abandon law firms for falling $5,000/year short of market. I therefore thought it worthwhile to examine the effects of Obama’s tax and spending plans on take-home pay.
We all know that Obama wants to end the Bush tax cuts. That is a 3% bump across the board to the bad old days when associates faced a marginal federal tax rate of 36%.
But the real hidden tax is that Obama plans to end the social-security tax cap. Right now, you may notice, sometime during the summer or early fall, your take-home pay suddenly goes up because they stop deducting FICA. Current law caps social security taxes: in 2008, the cap is at $102,000. Obama proposes to abolish this. That mid-summer bump will be no more: add about several thousand dollars to your annual tax bill.
But social-security taxes are not only on employees. The government also charges 6.2% to employers that you never see on your W-2s. But rest assured the partners see this, and will notice that the expense of keeping an associate has risen several thousand dollars a year when FICA taxes double and triple. Will they swallow that additional expense, or take it out of your bonus?
Find out, after the jump (or click here).

double red triangle arrows Continue reading “Obama, BigLaw, and Taxes
(Or: Obama = $34,000 Paycut)”

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