WAGE WARS: The Aftermath©

"Arthur" answered the phone when we called today to discuss our fall programs for lawyer retention and improving lawyer job satisfaction and quality of life. When we told him why we were calling, he said, "My partners aren’t too interested in keeping young lawyers satisfied right now. We just gave them all a huge raise to keep them on board and right after we did it, four of them took the money and quit!"

We heard a similar story from "Tom" at lunch last week. "We’re not sure we even want to hire any first or second year lawyers any more. You pay them all this money and you know they aren’t going to be here in four or five years. Why not just hire a lateral in the first place?"

"Janet" told us, "Now we’ve paid these high salaries and we still can’t get the associates to commit to client deadlines. I’m working harder than ever because I can’t get them to do the job. I feel like they should be working even harder now that I have to pay them so much."

"Fred" said, "Our executive committee agreed to raises of $25,000 or more for associates across the board without even asking the partners if we agreed to it. Now, we’re going to be taking pay cuts to pay for these new salaries, and partners are pretty upset about it. Several of them think we’d be better off to open our own shop where we don’t have this overhead or just get out of this business altogether."

Unless you’ve been living on Mars the past few months, you know that law firms have been engaged in a serious struggle with associate salaries. We reported on the wage wars, started by the Silicon Valley firms to stem the brain drain to dot.coms, in the April and May issues of our newsletter, which are available on our web site. Almost every legal journal has reported on the issue since then. Web sites have sprung up to provide accurate information about salaries and the "Greedy Associates" sites we told you about have even more postings today.

Most law firms have now addressed the question of first year associate salaries and the ripple effect on more senior associate salaries. Most firms have decided to meet the higher salaries of their competitors in their respective markets, although compensation plans for paying those salaries are varied.

Some firms are paying a set salary for certain performance and then relying heavily on a bonus structure based loosely on "merit." "Merit" is usually defined as a significant increase in billable hours, although some firms are also giving bonus credit for other activities that "make a well rounded lawyer," such as pro bono work, assistance with recruiting, mentoring, participating in training and so on. Associates are comparing notes with their peers and looking to see whether there is a better deal elsewhere. There always is.

In our work this year, we’ve had the opportunity to talk with a lot of lawyers "in the trenches" about these issues. One thing none of the firms we’ve talked with have seriously considered is why those Silicon Valley firms were in a position to offer such generous raises in the first place. Primarily, it’s because they do not price their services on a billable hour basis.

Creative billing and pricing strategies allow firms to increase revenue sufficiently to generate more income without increasing billable hour requirements. Such pricing strategies reward working smarter, not longer; working at premiums, not just higher hourly rates; taking an equity stake in the client’s business and other innovative billing techniques.

Nor have the traditional firms, who have quite a bit to offer young lawyers, attempted to keep lawyers based on what they offer in lieu of money. Studies repeatedly show that the reasons associates give for leaving law firms is not primarily money. Instead, they leave for quality of life, training, mentoring and trust issues. Those issues don’t improve just because associates are making more money. Indeed, they’re often worse due to partner feelings about the burden of increases.

Beyond that–and this is not a popular point, but it needs to be said–often, the senior partners who made the decisions to raise salaries, have the least at stake in the decision. They make the most money and thus will "feel the pinch" less. And they will be retiring much sooner, leaving the mid-level partners to deal with the problems the raises have created. The middle level partners, who are generally working hard and living up to their incomes and beyond, were either not consulted or did not agree. And they resent it.

What can firms do now? First, accept that the raises you’ve agreed to pay are not the solution to the "problems" of dealing with GenX lawyers. The "problems" are still there and will only increase if partner attitudes don’t improve. The thing to do at this point is to make the best of your new investment and try to keep those lawyers productive in your organization. The way to accomplish that is to give the lawyers the things that do make a difference: training, mentoring, feedback, communication, a stake in the outcome, and quality of life. PeopleWealth has developed programs to assist firms with this effort and is now scheduling for fall.

Next, put the considerable brain power of law firm partners to work to figure out how to generate more revenue without working additional hours or increasing hourly rates beyond the point where clients will gladly pay them. Then, your investment in increased salaries won’t be an albatross, but a stimulus to improved profitability.

PeopleWealth can assist your Professional Development staff on a consulting basis to communicate effectively with lawyers and to help lawyers design and build successful careers in your practice. Contact our office, visit our web site at www.PeopleWealth.com, or e-mail us: info@PeopleWealth.com
©PeopleWealth August 2000