Tuesday, February 17, 2009

Open Thread - Law Firm Compensation

In response to an earlier article, a commenter had an interesting proposal for "Big Law" compensation:
Here's what my proposal to the ABA would be: Find a way to create a mandate of a 90/110/135 scale for each of the V100 firms. After 3 years, the firm and the experienced attorney can negotiate on a personal basis, such that the compensation package would reflect what the attorney actually brings and would bring to the firm. In return, the BigLaw firms would be able to cut costs and still harbor and nurture their talent.
Putting the specific numbers the commenter suggests, which are on the low end, this proposal actually makes a lot of sense as a way for firms to protect their interests while avoiding mass layoffs in this economic climate. And there are other conceivable benefits, too.

Would you be in favor of such a policy? Be sure to specify whether you are a law student, current associate or otherwise.

27 comments:

  1. Yes. Major market associate V10-15.

    I hate lockstep because I consistently bill more than everyone else and get the same salary. I think this plan would make plenty of sense in this economy.

    ReplyDelete
  2. I don't think the problem is associate compensation. Partners at these firms are making between one million and 4 million dollars. The problem is that there isn't enough work to go around. What's the point of keeping associates no matter what their pay if there isn't enough work for them to do?

    The logic behind this suggestion seems a little goofy.

    ReplyDelete
  3. Also, it should be noted that most layoffs at law firms are not lawyers they are staff.

    ReplyDelete
  4. So non V100 firms can do whatever they want? The ABA has no authority to control what law firms pay their associates.

    ReplyDelete
  5. @ 10:04--

    That's an obvious problem, and I pointed it out in my reply to the commenter.

    Let's assume, for the sake of the discussion, that all firms would be bound by this kind of rule.

    ReplyDelete
  6. If this would keep my job, I'd be all for it. A lot of my friends were stealthly laid off and I'm veyr worried.

    ReplyDelete
  7. As the absent-father of this proposal, I hope to offer some clarification here.

    (1) Yes, the non-V100 can pay whatever they want. First-year lawyer pay is bi-modal-- a large percentage of freshly-minted lawyers earn one 'peak' average of about $40-50k; another large (albeit not nearly as large) percentage of associates earn the other 'peak' of about 120-135k. It is interesting that not too many people inhabit the middle region (50-120k) Some very intelligent and knowledgeable parties have commented and analyzed this data (see: http://www.bmacewen.com/blog/archives/2008/07/the_bimodal_starting_sala.html). It is safe to assume that most of the firms on the 120-135k peak are the V100 (give or take some). So, the limit would only impact the V100 because, frankly, they are the only ones who are on that peak to begin with.

    (2) Sports fans should realize that my proposal is a bastardized version of the NBA Rookie Salary cap (see: http://www.nbpa.org/cba_articles/article-VIII.php#section1). The NBA, in creating such a scheme was hoping to avoid the problems facing NFL teams who have high draft picks, which require very high upfront, guaranteed commitments for players who may or may not perform up to their pedigree (sound familiar?)

    (3) Careful readers of the initial paragraph of my proposal would realize that it tacitly recognizes that the ABA is, by itself, powerless to do anything. There is a difference between creating a mandate and finding a way to create a mandate. As to the nuts & bolts of the plan--I don't know who, what, how, or where this plan could even begin (I mean, c'mon, I came up with this while in Estates for Chrissakes!) Obviously, the ABA would have to find a way to get Legislatures and/or Congress involved (perhaps a Commerce Clause issue??) But that criticism is irrelevant to the question at hand-- namely, how in the hell is BigLaw gonna keep kickin'?

    P.S. I like this blog a lot and am glad I found it. You've def. made it onto my list of places to look while trying to stay awake in Estates et. al. Congrats!

    ReplyDelete
  8. Mastershake, I love the idea. But, wouldn't having the ABA (or a like organization) implement such a concerted scheme hinge on a potential violation of the antitrust laws against concerted price-fixing schemes. Now, obviously if others in the market merely followed the practice of one firm, this may not be such a problem.

    ReplyDelete
  9. Like I said above, the initial mover would have to be an ABA-like mover; however, the prime mover (i.e. the enacting agent) would have to be some sort of Congress/Legislature... and, last time I checked (which was 5 minutes ago) Congress can pretty much do whatever the hell it wants. Plus, the NBA manages to do something similar through its CBA (collective-bargaining agreement), so, ostensibly, it should not run into many anti-trust problems. As to problems of reality... well, I'm just a 2nd year-- what the hell do I know about reality?

    ReplyDelete
  10. likewise, I am a 2L. I think CBAs are exempt from the antitrust laws. I also think that collectivized teams, etc., are also exempt. But, I think something like this is a fantastic answer to the problems with associate pay. It would be nice to hear some further commentary and discussion on it.

    ReplyDelete
  11. I don't understand what the problem with associate pay is. Partners are making around 2 million dollars a year in a lot of the firms that pay these rates. Firms are still making quite a bit of money off associates. What is lowering the pay going to do?

    It shouldn't save jobs. If there isn't enough work to go around what is the point of keeping somebody? You aren't making anybody a better lawyer.

    Why don't we leave managing law firms to the owners of those law firms, the partners. If you want to work for less pay there are many opportunities out there fore you to do so.

    ReplyDelete
  12. There is a problem with associate pay, 2:25. If there was no problem, no one would need to get fired. Every indication is that it's not a lack of available work so much as a desire to have the same profits in a time when it is hard to collect for work done.

    This kind of plan could save jobs. Other firms have already taken other such measures (ie. lowering annual salary by a certain percentage). This idea makes sense given current economic conditions. Lockstep compensation is inefficient and rewards bad workers unnecessarily.

    ReplyDelete
  13. @ Master Shake --

    We (obviously) think your novel idea is interesting, and has appeal...I'm glad that, so far, we've had some interesting discussion on the topic.

    And thank you very much for the compliment. We are, in many ways, still getting our bearings but we have a lot of great ideas about where we want to take this, and have been pleased with the reception thus far.

    ReplyDelete
  14. @ Craig, et. al.--
    I tried the blog thing a couple of years ago and had a lot of 'eyeballs' (in a relative sense) but not so much in the way of commentary. Perhaps I was writing on topics too narrowly, but for whatever reason, I couldn't elicit the response I sought. Anyway, keep up the good work and I look forward to more. (You should def. look up this widget I used to have on my site. It's map that measures that registers the geography of your viewers [without any sort of identifying factors]: http://www3.clustrmaps.com/counter/maps.php. It's cool to see where your readership come from.)

    @ Anon (2:25AM)

    There are 2 problems with your comment.
    (1) There is indeed problems with associate pay-- unless the new associate is a hybrid of Clarence Darrow, Perry Mason & Tom Cruise's character from The Firm, he just isn't productive enough for the firm to pay him what it pays him for the first 3 years. I have it on good authority from some family friends who are partners that law school teaches you jack-squat about being an associate in a law firm (or a prosecutor/PD for that matter). Essentially, the first 3 years are surplus accruing entirely to the associate at total cost to the firm/clients. (see: http://www.whataboutclients.com/archives/2008/08/should_associat_2.html). I don't care if you're #1 from Harvard/Yale/Chicago... you're just not worth $400-600/hour your first 3 years out of law school. So, no, the Firms are not making money off the associates.

    (2) Partner compensation is closer to market-optimality. Partners, whatever their faults, have...wait for it...Experience. Clients pay the high price for the experience because it is worth it to them. The person who has just made partner (on average) has experienced something like 6-9 years of practice. At that point, his skill-set is extremely fine-tuned and, more importantly, comparatively rare. When dollars chase a valued commodity (here: partner labor), the price rises to reflect the higher value vis-a-vis the substitutes.

    ReplyDelete
  15. actually, people get fired because there is nothing for them to do not because they get paid to much. I'm an associate at a large law firm and we are not billed out at $400-$600. Also, even in my first year of practice when granted I knew nothing the law firm still made money off of my work. Now as a third year associate they make a ton o money off of me.

    If you want to succeed as a lawyer it takes a ton of work. It's a very time intensive profession. That is why I have never minded working 60-70 hour weeks (really isn't that bad I still have plenty of time for my wife and family, take trips every year, etc.) You can't progress as fast if you are splitting that work with somebody else. Partners recognize this (at least at my firm) and if got to that point I am sure they would lay off associates who they didn't feel were cutting it.

    This is the private sector. Let employers pay what they like. Partners have no problem paying 160K in my firm at least.

    You can tell by the comments in here that most people have never stepped foot in a law firm or not how it works.

    ReplyDelete
  16. I agree that it's amazing that people don't think firms are making money off of young associates. That is their whole business model on how to drive up PPP. Become highly leveraged 4 or 5 associates per partner and have a high attrition among associates. In a lot of the larger NY based firms probably half of associates are gone by their third year. Now, if firms didn't make money off of them would they be highly leveraged like they are?

    Firms don't get super high PPP because of the work of the partner. The partner brings in a lot of work and puts junior, mid, and senior associates on it. That is how it works.

    ReplyDelete
  17. Why should the ABA be regulating jobs that only the top 5-10% of all law school graduates are able to obtain?

    Maybe they should focus their efforts on the legal jobs out there that pay $30,000 and try to increase the pay for those attorneys.

    ReplyDelete
  18. I agree with the commenter who said there may be antitrust problems with this kind of plan, but still think this is an interesting idea because the laws could probably be worked out to prevent any prolbems

    ReplyDelete
  19. I completely agree w/ 2:25 AM

    ReplyDelete
  20. I would be in favor of this if it prevented firings. Generally spoeaking, tuition costs are too high to have this work for students. It would be impossible to pay off loans.

    ReplyDelete
  21. Craig Reiser -- You are obviously missing the point here.... you need to learn Economics....

    ReplyDelete
  22. @ 2:48--

    There's no question I need to learn Economics, but that's neither here nor there. This post was more aimed about inquiring into how people would balance their interests than posing a realistic solution to existing problems.

    Be more specific; what point am I "missing"?

    ReplyDelete
  23. Mastershake, I am sorry to ask this, but could you clarify the approach a little more? I am having trouble understanding it.

    ReplyDelete
  24. This comment has been removed by a blog administrator.

    ReplyDelete
  25. Usually I love to read blogs and the comments it gets from various EXPERTs (I have noticed that many of them do not write relevant comments, but I respect their interest in different topics and efforts they put in to contribute to make blogs so popular). Since, I have been associated with a law firm so my main focus of interest is only restricted to law and legal issues. Recently, I was reading an article on a lawyer locator service, and I read a comment from a contributor about how bad was his experience with an accident for which he wanted to claim.. The funny part is he explained more than 100 words on the accident and the lawyer experience ended in a one lined saying.. he was good to get him justice. I could understand that he wanted to share the trauma of his accident, but probably that was not the right blog for him.

    ReplyDelete

Note: Only a member of this blog may post a comment.