Will Downturn Force Changes in Associate Compensation?
Bonuses for associates at several large firms are considerably smaller this year, reflecting a tougher economic environment for law firms.
But is lower compensation a temporary phenomenon or an indication of changes to come? Some Pennsylvania law firm leaders interviewed by the Legal Intelligencer suggested the tough economy could force a re-evaluation of associate compensation structures.
One leader raising the prospect is Drinker Biddle & Reath executive partner Andrew Kassner. He said that when economic times are bad, law firms re-examine their pay systems. “So I would assume the law firm industry as a whole is going to take a look” at their compensation structures, Kassner told the Intelligencer.
Other leaders who discussed the possibility with the Intelligencer did not want their names used. One predicted that law firms, particularly those with lockstep pay increases, will use the economy as a reason to “really re-examine associate compensation generally, including the bonus model.” He said firms will likely move toward a greater emphasis on merit-based pay, which could mean a larger focus on bonuses.
Another local firm leader said law firms have reduced staff costs through technology and greater efficiency, but the savings have been “more than eaten up by associate compensation costs.” Clients are pressuring firms not to raise rates, making it difficult to maintain profit margins. As a result, the leader said, firms are going to have to find other ways to be more efficient, and it will likely come from a change in fee arrangements or compensation structures.
