NY GOES TO 180k! IT HAPPENED!!!! (CovingTTTon does a 180! Holder wept.) Forum

[jbagelboy]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

Most first year billing, and much of second year billing, is written off, so they are far less profitable for firms than their posted billing rates suggest.

Associates cost more than their salaries, since they contribute to overhead, benefits, and related costs.

Firms only have so much work, and only handle so many matters. If you don't have enough billable work for your associates to bill a profitable amount (be it 1700 hours, 2000 hours, or 2200 hours), you will be faced with a tough choice.

But yes, the lateral market for mid-levels has been hot the past year because there has been enough work to support them and at times not enough well trained persons to do it.

[Anonymous User]

I think they're all stuck in a prisoner dilemma situation and waiting to see who will match first.

[smaug]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

lol

[El Pollito]

Fire up the lateral apps!

[Anonymous User]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

yeah, its definitely irking. There are some high PPP NYC based firms (including mine) that have been eerily silent. There better be some more action this week.

[Anonymous User]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

yeah, its definitely irking. There are some high PPP NYC based firms (including mine) that have been eerily silent. There better be some more action this week.

It's time for the Boston firms to wake up, too.

[Emma.]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

must be because none of the compensation committees meet on monday...right? guys, that must be it, right?

I think we'll continue to see matches in the next few weeks but if a firm didn't scramble to match right away last week they probably see little downside at this point to waiting a week or whatever. There's no need at this point to hold some emergency meeting, they can schedule a meeting at a convenient time—that likely means less of a flood and more of a trickle of matches going forward.

[UnicornHunter]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

People have mostly covered it (and none more succinctly than Smaug) but you might as well ask why firms don't hire more associates if they make money off each one. Why not infinite associates? Why don't companies make more products if they sell each one for a profit? Seems like a lot of free money people are leaving on the table.

The answer, of course, is supply and demand. When the demand for legal work dries up, so does the profitability of associates.

Which is the danger of this raise. With bonuses being the primary driver of compensation, firms had more leeway to weather slow times by cutting bonuses. Now, a few extra associates with $180k scale salaries will be on the block next time the Bad Times roll around.

Whether that's a good thing or a bad thing depends on how likely you think a market slow down is and how well positioned your firm is to weather one.

[nahumya]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

The layoffs happen during slow periods. When you pay your associates high base salaries, it gets pretty expensive during slow times (which will always, inevitably occur to every firm).

[J14M]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

People have mostly covered it (and none more succinctly than Smaug) but you might as well ask why firms don't hire more associates if they make money off each one. Why not infinite associates? Why don't companies make more products if they sell each one for a profit? Seems like a lot of free money people are leaving on the table.

The answer, of course, is supply and demand. When the demand for legal work dries up, so does the profitability of associates.

Which is the danger of this raise. With bonuses being the primary driver of compensation, firms had more leeway to weather slow times by cutting bonuses. Now, a few extra associates with $180k scale salaries will be on the block next time the Bad Times roll around.

Whether that's a good thing or a bad thing depends on how likely you think a market slow down is and how well positioned your firm is to weather one.

Obviously I recognize that there would only be enough work for so many associates. My question was premised on the assumption that there is plenty of work for the associates who are already employed, which, in my personal experience, has always been true.

Edit: And of course work could dry up during a recession, but I was mostly asking the question in response to comments suggesting that firms would lay people off shortly after issuing raises.

[2014]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

Most first year billing, and much of second year billing, is written off, so they are far less profitable for firms than their posted billing rates suggest.

Associates cost more than their salaries, since they contribute to overhead, benefits, and related costs.

Firms only have so much work, and only handle so many matters. If you don't have enough billable work for your associates to bill a profitable amount (be it 1700 hours, 2000 hours, or 2200 hours), you will be faced with a tough choice.

But yes, the lateral market for mid-levels has been hot the past year because there has been enough work to support them and at times not enough well trained persons to do it.

In my limited experience this is certainly not the case

Not that your other points don't have merit, I just wouldn't rest the argument on "juniors work is free"

[Anonymous User]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

yeah, its definitely irking. There are some high PPP NYC based firms (including mine) that have been eerily silent. There better be some more action this week.

It's time for the Boston firms to wake up, too.

We're all looking at you, Ropes.

[TFALAWL]

Fuck this Guy:

"3. New York Lawyers Are Just Tougher

Need we remind everyone of Buskergate? Get some gumption before asking to be paid what the grownups are making.

Again, I’m all for lifting associate salaries no matter where you live. And I love firm socialism (e.g., lockstep partner compensation for encouraging collaboration and cutting back on inefficient infighting). But paying New York lawyers nominally more than those beyond the Isle of Manhattan is a matter of basic fairness."

http://abovethelaw.com/2016/06/no-your- ... 180-raise/

[Monochromatic Oeuvre]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

To expound on the point others have made, you are not just $180k. You are $180k (plus bonus), and you are also a prorated share of rent, utilities, computers, furniture and printer ink; you are paralegals, secretaries, IT, security, office managers, and accountants; you are an OCI suite, a callback flight, a Yankees game, a fuckload of lunches, an SA's salary, and the recruiting team itself; you are marketing, severance, and pro bono; you are also all the write-offs and discounts demanded due to your inexperience or outright fuckups; you are every bill you submit late; you are the wasted time everyone else spends holding your hand; and finally you're also a profit margin (healthy Biglaw firms rarely fall below 30%) that needs to be maintained or your partners--and all their business--will find another shop right quick.

Add all that shit up and it's not a mystery why a firm needs you to generate something close to $1M (pre-discounts/writeoffs) for you to be a profitable hire. When the work dries up to the point where you're not gonna come close, a certain percentage of you are out the door.

[Anonymous User]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

One thing to note is that for lower-ranked firms, it's far from "easy" for associates to bill enough hours to cover their salary plus other expenses. Posted billable rates mean nothing; clients often negotiate steep discounts. To provide hard data, as a third-year associate at a V75 DC firm, I billed several hundred hours to a Fortune 10 client at under $250/hour. Some midlevels at my firm were billing as low as $190/hour. At those rates, associates may not be that profitable when you account for benefits, overhead, and a below-market bonus. And associates that miss their billable minimum by a lot, which happens in slow periods, may be a net loss.

[bern victim]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

To expound on the point others have made, you are not just $180k. You are $180k (plus bonus), and you are also a prorated share of rent, utilities, computers, furniture and printer ink; you are paralegals, secretaries, IT, security, office managers, and accountants; you are an OCI suite, a callback flight, a Yankees game, a fuckload of lunches, an SA's salary, and the recruiting team itself; you are marketing, severance, and pro bono; you are also all the write-offs and discounts demanded due to your inexperience or outright fuckups; you are every bill you submit late; you are the wasted time everyone else spends holding your hand; and finally you're also a profit margin (healthy Biglaw firms rarely fall below 30%) that needs to be maintained or your partners--and all their business--will find another shop right quick.

Add all that shit up and it's not a mystery why a firm needs you to generate something close to $1M (pre-discounts/writeoffs) for you to be a profitable hire. When the work dries up to the point where you're not gonna come close, a certain percentage of you are out the door.

a fair point but a lot of those are fixed costs unrelated (or very loosely related) to the # of associates

[rahulg91]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

yeah, its definitely irking. There are some high PPP NYC based firms (including mine) that have been eerily silent. There better be some more action this week.

Yeah what's going on with Paul Hastings and SRZ?

[UnicornHunter]

Honest question from someone who knows embarrassingly little about law firm economics. Once a firm raises salaries, how would it ever benefit from laying off associates? It should be very easy for a first-year associate to bill enough hours to cover a $180K salary, for a second-year to cover a $190K salary, etc. So if those people are laid off, isn't the firm just losing more money? Seems to me that if a firm lays people off, it only becomes harder to cover the raises they just gave out.

People have mostly covered it (and none more succinctly than Smaug) but you might as well ask why firms don't hire more associates if they make money off each one. Why not infinite associates? Why don't companies make more products if they sell each one for a profit? Seems like a lot of free money people are leaving on the table.

The answer, of course, is supply and demand. When the demand for legal work dries up, so does the profitability of associates.

Which is the danger of this raise. With bonuses being the primary driver of compensation, firms had more leeway to weather slow times by cutting bonuses. Now, a few extra associates with $180k scale salaries will be on the block next time the Bad Times roll around.

Whether that's a good thing or a bad thing depends on how likely you think a market slow down is and how well positioned your firm is to weather one.

Obviously I recognize that there would only be enough work for so many associates. My question was premised on the assumption that there is plenty of work for the associates who are already employed, which, in my personal experience, has always been true.

Edit: And of course work could dry up during a recession, but I was mostly asking the question in response to comments suggesting that firms would lay people off shortly after issuing raises.

Ah well in that case that's a more reasonable question. I think the fear is that there's no doubt that a firm like Cravath or Skadden can afford the raises, but firms that operate on tighter margins will feel like they have to give out raises to match the market but then will turn around and push people out (or hire fewer incoming) in order to afford the raises. Hours will just be redistributed to remaining associates, so no profit lost though maybe quality and morale suffer.

[Anonymous User]

Baker McKenzie matched!!!

[Tiago Splitter]

Baker McKenzie matched!!!

All 1,732 offices?

[Anonymous User]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

yeah, its definitely irking. There are some high PPP NYC based firms (including mine) that have been eerily silent. There better be some more action this week.

It's time for the Boston firms to wake up, too.

We're all looking at you, Ropes.

Their exceutive committee is meeting early this week to vote on this.

[Anonymous User]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

yeah, its definitely irking. There are some high PPP NYC based firms (including mine) that have been eerily silent. There better be some more action this week.

It's time for the Boston firms to wake up, too.

We're all looking at you, Ropes.

Their exceutive committee is meeting early this week to vote on this.

source?

[Anonymous User]

Orrick, Paul Hastings, Pillsbury -- where are you?

[Anonymous User]

but really, I'm surprised by the lack of matching activity today. maybe all the non-matched AmLaw firms are hoping everyone woke up from their hangovers and forgot about what happened last week

yeah, its definitely irking. There are some high PPP NYC based firms (including mine) that have been eerily silent. There better be some more action this week.

It's time for the Boston firms to wake up, too.

We're all looking at you, Ropes.

Their exceutive committee is meeting early this week to vote on this.

source?

Hearsay from partner.

[Anonymous User]

Fuck this Guy:

"3. New York Lawyers Are Just Tougher

Need we remind everyone of Buskergate? Get some gumption before asking to be paid what the grownups are making.

Again, I’m all for lifting associate salaries no matter where you live. And I love firm socialism (e.g., lockstep partner compensation for encouraging collaboration and cutting back on inefficient infighting). But paying New York lawyers nominally more than those beyond the Isle of Manhattan is a matter of basic fairness."

http://abovethelaw.com/2016/06/no-your- ... 180-raise/

SF is just as expensive as NY, that was curiously omitted. Also, was he trying to argue that we all should go to cheaper law schools if we are going to then go to anywhere but NYC? That really doesn't help people who went to "market rate" law schools, and are now working somewhere that is not New York.