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Life After the Gold Rush


— October 5, 2004

And so it has come to pass . . . .

On June 15, 2000, I posted the following in message No. 2356 on the “Greedy SF/SV” associates’ board at Infirmation.com, discussing the then-recent jump in associate salaries at large law firms:

This whole salary thing is insane . . . . 1) It’s necessitated because the firms all compete for the top 10% from a handful of schools. That means they totally ignore thousands of very intelligent graduates, many of whom will make excellent lawyers. It’s a self generated scarcity, and I think it’s idiotic. 2) With the huge salary comes huge expectations of billables. That will lead to burnout for many, who will quit. That will create even greater need to compete for the “scarce” top graduates. Again, self-generated problem. 3) When this economy cools and the work slows down, there will be a bloodletting that will make the crusades look like a picnic. The hardest hit firms will be those heavy into transactional work — the very ones that started this mess because they had so much cash they couldn’t figure out what to do with it. In short — lunacy. I wish you all luck.


And so it has come to pass . . . .

On June 15, 2000, I posted the following in message No. 2356 on the “Greedy SF/SV” associates’ board at Infirmation.com, discussing the then-recent jump in associate salaries at large law firms:

This whole salary thing is insane . . . . 1) It’s necessitated because the firms all compete for the top 10% from a handful of schools. That means they totally ignore thousands of very intelligent graduates, many of whom will make excellent lawyers. It’s a self generated scarcity, and I think it’s idiotic. 2) With the huge salary comes huge expectations of billables. That will lead to burnout for many, who will quit. That will create even greater need to compete for the “scarce” top graduates. Again, self-generated problem. 3) When this economy cools and the work slows down, there will be a bloodletting that will make the crusades look like a picnic. The hardest hit firms will be those heavy into transactional work — the very ones that started this mess because they had so much cash they couldn’t figure out what to do with it. In short — lunacy. I wish you all luck.

To paraphrase John Kerry, I was right then, and I am right now. Here are some excerpts from an article in tomorrow’s Legal Times, via Law.com:

In 1999, during the height of the Internet boom, a San Francisco Bay area law firm named Gunderson Dettmer Stough Villeneuve Franklin & Hachigian did something extraordinary: The firm raised first-year associate salaries from around $100,000 a year to $125,000 a year with a guaranteed $20,000 bonus — a total compensation package of $145,000 a year.

Gunderson was competing for top law students who were suddenly imagining other career tracks at the new crop of Internet startups, companies that could offer stock options and an exciting work environment along with the huge salaries.

Other California law firms soon rushed to keep up — and before long, sky-high salaries at Internet startups and law firms had spread across the country. . . .

[I]n 2004, though, the landscape is drastically different. The Internet startups that lured law students with promises of riches are now mostly defunct. Many associates who left law firms for these seemingly lucrative jobs found themselves unemployed within months.

And yet there is still one significant result left over from those heady days: the $125,000 annual salary for first-year associates at the . . . largest firms. . . .

How have those salaries affected the associates — and the firms themselves?

The firms have had to figure out ways to come up with what can add up to a huge amount of money. On average, salaries across the board jumped about $40,000 in one year. Multiply that by all the associates at a firm (since all salaries are adjusted along with first-year salaries), and the bigger firms were paying out millions of dollars more per year.

Firms mainly pursued three options to cover the increase: Take money from the partners’ share; increase billing rates for clients; or require more billable hours.

Most firms chose a combination of the three options. The billable hours requirements rose at many firms. . . .

RAISING THE PRESSURE

One thing is certain: Associate life has certainly changed as a result of the California shock wave. When Gihan Fernando, assistant dean for career services at Georgetown University Law Center, first heard about the salary raises back in 2000, he worried about their effect on new lawyers.

“It immediately meant that there was far less room for new associates to make mistakes,” he says, “and it meant that billable hour expectations that were already high were looked at more closely.”

Fernando feels that first-year associates need flexibility in learning the ropes. The absence of that flexibility, combined with the high billable hours requirements, translated into a lot more pressure for associates.

Peter Pantaleo, the former managing partner of Verner, Liipfert, Bernhard, McPherson and Hand (now a part of Piper Rudnick), says the salary increases “put an absurd amount of pressure on associates [and fostered a] notion of shut up and produce.” Pantaleo remembers the old days when law firms focused on associate training and career development, and where every associate who was dedicated to the firm and worked hard could make partner.

“That was the biggest trade-off,” he says of the new salaries. “Now it’s a job and you get paid a lot of money and no one wants to worry about your future.” Law firms now see associates much more as fungible units of production instead of potential future partners.

Most of the first-year associates will burn out and leave after only a few years, so firms want to get as much work out of them in the time they are there, Pantaleo observes. At the same time, since most of the junior associates will leave, the firms don’t feel the same need to invest time or energy in training and grooming them as future partners.

Besides the disposable-associate attitude, many firms that had “target” billable hours but no required amount changed their minds and started to require a certain number of billable hours.

Reed Russell, an associate at Akin Gump Strauss Hauer & Feld, remembers that Akin Gump instituted a 2,000 billable hours requirement after the salary jump. And Plotkin says that Covington abandoned its no-billables requirement and instituted a “benchmark” of 1,950 hours in the wake of the salary increases. He stresses that the target is a soft one, not a requirement. . . .

I toot my own horn. You frickin’ people are crazy. Details, once again, are here.

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