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"The proposal: Abandon the lockstep compensation approach toward associate pay in favor of a system that aligns pay with the performance of the individual associate and the firm, and significantly shifts the bulk of total compensation to this variable component. A performance-based pay structure would go a long way toward helping firms keep top legal talent, and it would serve firms better financially. "
The idea has been around for awile , but has seen little acceptance by the top firms. The current upheaval could be the best opportunity for it to get serious consideration.
Do you work at a law firm and still have a job this week?
"Six prominent firms sent packing more than 700 attorneys and legal staffers, in what may well become known as Black Thursday in the legal industry. DLA Piper; Holland & Knight; Goodwin Procter; Bryan Cave; Epstein Becker & Green; and Dechert all confirmed layoffs on Thursday (2/12/09), adding to what has become a brutal contraction of legal jobs. Faegre & Benson also confirmed on Thursday that it initiated layoffs on Wednesday, while Cozen O'Connor confirmed that it let go of staffers on Tuesday."
Want a feel good piece to start the week off? Don't read this one then The Fire This Time: Thoughts on The Coming Law Firm Hiring Crisis. In it, Arik Press in The American Lawyer wrote today about the paradigm shift in hiring and retention in the big firm market.
"If present trends continue in the big firm market, we are heading toward -- you pick the cliche -- a paradigm-shifting, blood-in-the-suites, terror-on-the-campus hiring and retention crisis. The "economic reset" that General Electric's Jeffrey Immelt has tagged seems likely to force changes in the way firms recruit, pay and/or retain their lawyers. The market for labor has changed and, for now at least, there's no normal to which it can return."
And that is just how it starts. Press points to several key issues:
Demand for legal services is flat or down. Since some areas of law are seeing healthy workloads and growth, that means that some practice areas are seeing dismal workloads.
Haggling between business generators and other equity partners are likely to grow, as firms identify who is bringing in business and who is not.
Law firms depend on attrition (up to 25% of assoicates annually) as part of their historical structure. With few people leaving on their own, the layoffs we are seeing are the firms' way of making that happen.
What to expect (if the economy does not jump start soon):
Amanda Royal in The Recorder writes, as reprinted in Law.com:
Almost 800 associates and legal staff nationwide returned home jobless Thursday after eight firms conducted mass layoffs, citing an unprecedented downturn in demand. And the bloodletting is likely to continue.
"There will be more," said consultant Peter Zeughauser. "Materially more. I'm aware of some big ones coming up."
"[T]he recession will last through 2010. Law firms will use this period to substantially restructure, and beginning in 2011, things will start growing again. While there's a lot of detail and nuance around the form this restructuring will take, it can be described in simple terms. A typical law firm bill in January 2011 will generate the same dollars for partner work as it does today, but it will generate half the revenue for associate work. Consider a bill in July 2008 for $1,000,000, representing $450,000 of partner contribution, $500,000 of associate contribution and $50,000 of "other"; in January 2011, the bill for an essentially identical project will be $800,000, reflecting $450,000 of partner contribution, $250,000 of associate contribution and $100,000 of "other."
Whether this is accounted for as hourly billing or "value billing" is not particularly strategic, except that to measure differently will, of course, incentivise firms to be more thoughtful about how to structure work.
Where will those dollars go? Four places.
1. Clients will just flat-out spend less, drive harder bargains and get more for their money.
2. Some work will go to outsourcers, whether onshore or off.
3. More work will go to contract lawyers or proto-associates not on any kind of partnership track.
4. Some associate time will get replaced by technology.
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