Law360, New York (July 15, 2010) — After abandoning the model briefly during the recession, Akin Gump Strauss Hauer & Feld LLP has become the third major law firm in recent weeks to announce it will revert back to a lockstep associate salary structure in 2011, and legal industry experts expect more firms to follow suit.
Akin Gump’s new recruits are projected to start at $160,000 to match market value in 2011 and are assured of receiving every cent without having to meet billable-hour targets or other benchmarks, a firm representative confirmed Thursday. WilmerHale and DLA Piper announced similar plans June 29 and June 30.
But despite widespread belief that the industry was on the verge of reinventing its compensation practices, this return to lockstep shouldn’t come as a shock, said Elaine Makris Williams, president of recruiting firm MS Legal Search LLC.
While associate pay structures may have changed as firms struggled to stay profitable during the economic downturn, the market rate for top-tier associates never changed, Williams said.
“This is all about attracting and retaining the best talent,” she told Law360 Thursday. The recession drove the number of jobs down and eager applicants up, but that didn’t give law firms bargaining power over the cream of the law school crop, who have been pursued by international law firms the world over and have retained the luxury of naming their prices, Makris said.
“In every industry, there are a few select people that can choose who they want to work for,” she said. “Look at sports. There are always a few top-tier players who have teams competing for them rather than vice versa, and it’s like that in law, too.”
Firms gunning for top-shelfers can’t afford a single stumble, much less offer below-market salaries, she said, adding that firms are feeling the pressure to employ strong associates who can do partner-level work for less.
“They’re pressured to decrease billing at the partner level, so they need to push work down to associate levels, so they need to make sure that have really good associates who can do the work,” she said.
The about-face on lockstep compensation indicates that the merit-based system — lauded by firms during the recession — was never really about merit, according to Charles Green, CEO of Trusted Advisor Associates LLC.
“They said, ‘We’re cutting back for higher principles,’ and now they’re saying, ‘Well, the higher principles just didn’t work out,'” Green told Law360. “And they’re saying that right as we’re coming through the worst part of the recession. Gee, you think that’s a coincidence?”
WilmerHale was the first to pull the plug on merit-based pay, announcing June 29 that associates will be paid the guaranteed market rate in 2011, plus potential bonuses. That figures to be $160,000 for first-years, $170,000 for second-years and $185,000 for thirdyears, though final figures have not yet been determined, a firm spokeswoman said.
The firm acknowledged that the old compensation system was the only way to stay competitive. “In order to attract and retain the best talent, we have always compensated our lawyers very competitively, through good times and bad,” it said in a statement. “Short-term savings do not help us recruit and retain the best talent.”
That affirmation stands as a dramatic departure from a December memo, leaked to legal tabloid Above The Law, in which WilmerHale supported its conversion to merit-based pay by stressing that “the traditional structure and method of doing business for law firms is changing and needs to change.”
DLA Piper made headlines on June 30 when it vowed to reinstitute a $160,000 guaranteed base salary in 2011 after operating at a $145,000, merit-based system since December.
Akin Gump said in December the merit-based program was “imperative to provide [associates] with the greatest opportunities for professional development,” according to a statement leaked to Above The Law.
As those firms scramble to catch up to the market, those that never abandoned lockstep can enjoy a little vindication, Green said.
“When the recession happened, some firms freaked out and slashed spending, and now theylook stupid,” Green said. “Others stayed the course, had enough money for a rainy day, and now they look smart.”
Green was one of many who once touted cost-cutting as the right move, telling Law360 in October that firms that stubbornly maintained high salaries throughout the recession did so more out of ego than business smarts.
But now that the market seems to dictate a $160,000 base salary, he said, circumstances may not have been as analysts saw them.
“I think the jury’s still out, and certainly there is a limit when it comes to salaries,” he said. “But the firms that took a long-term approach now are the ones looking smart.”
The desire to keep up with the market may not be the only force driving firms away from merit-based pay. Maintaining a certain image may also be playing a part.
“There’s always been a fundamental misunderstanding that seismic changes in pay structure are being pushed by associates’ demands,” Gary Klein, founder of legal recruiting firm Klein Landau & Romm Inc., said. “Really, I think it’s being driven by management’s perception that if they don’t pay at the top of the scale, they’ll be viewed as something lower than topgrade.”
Image does indeed have something to do with it, Williams said. Smaller and mid-size firms affected by economic downturn may never go back to lockstep, she admitted, but industry leaders such as Akin Gump have reputations to maintain.
“They want to say, ‘We’re the exception, we’ve survived.’ No managing partner is going to sit down and tell me that, but I think that’s the thought process,” she said, adding that it will be the big firms — those competing for reputation and the attention of the brightest associates — that stand to get caught up in the competition to revert to lockstep.
“My prediction is, someone will take it even farther,” she said. “Some firm, looking to stand out, will announce that they’re offering more than market value. And then you start a wholenew competition.”
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