The National Law Journal has done the homework and put a price tag on the layoffs.
Firms are saving an estimated $250,000 for each attorney laid off, $100,000 per staffmember.
Salary and rent account for 85% of a firm’s operating expense.
“There’s only so much you can save by pulling the tea and cookies out of the conference room,” said the chairman of a major U.S. law firm that has laid off attorneys during the economic downturn. In order to speak candidly about his firm’s finances, he requested anonymity for this story. “The rent you’re stuck with, so you’re left with this huge megillah of compensation,” he said.
Part of the problem is the lack of attrition. In a model built on an expection that 25% of attorneys will turn over every year, the economy is causing lawyers to stick around past their welcome.
Not surprisingly, the firms are taking the easy/short-sighted way out, according to one consultant. After the jump.
The anonymous partner addressed this issue:
However, cuts on the bottom rungs may not be the smartest move, he said. He gives the example of a law firm with $100 million in revenue, with 30% of that amount going to associate salaries. Layoffs that trim 5% of associate costs are the equivalent of just 1.5% of revenue.
“If you think about saving money, culling associates is really not the big game. It’s the easy game,” he said. Blase added that, under his scenario, a mere 3% savings requires a firm to lay off 10% of its associates.
The tougher choice is to make cuts at the nonequity and senior counsel levels, he said. Not only are those attorneys typically very expensive for law firms during slow times, but some of those lawyers, out of desperation, hoard work from the attorneys below them, he said.
Talk about being crosswise with clients. This managing partner is advocating trimming senior, non-equity lawyers. Those are exactly the lawyers who are most valuable to clients. They’re mature and responsible enough to work without supervision and their billing rates are still reasonable.
Instead, he’s saying the firms should keep the junior associates who are anathema to most clients. They’re too junior to do anything right the first time, they take too long to do most tasks, and their work requires one or more subsequent layers of review at the firm – further running up the bill.
