February 13, 2007

A Goldman Sachs Style Law Firm

by PG

I'm hesitant to discuss BigLaw economics again, as my last attempt showed that a) I don't know what I'm talking about; and b) one of my co-bloggers is much better at it. Nevertheless, after reading two posts at Above the Law this afternoon, I couldn't help but wonder: why are we so fixated on salary? That's not to say that bonuses don't get plenty of attention in their season, but it's in a quasi-salary fashion, i.e. focused on across-the-board rewards. Law firm bonuses are reported as a specific sum depending on grade, whereas investment bank bonuses were averaged because different people were given different amounts. And not giving bonuses at all doesn't seem to bring the shame that failing to match higher salaries does.

Consider a highly unscientific survey of law firm associates that revealed the majority would take a cut in pay proportional to the cut in the billable hours requirement. If firms paid in a more backward looking fashion, wouldn't it be easier for people to individualize the number of hours they worked? Those who want to go home and walk the dog themselves can have the hours and money appropriate to their preference, while those who want to pay someone else to walk the bitch can as well. Compensation also could be more closely commensurate with the quality and challenge of the work, which might force the firms to realize that paying so much for document review and due diligence work is silly.

Two obvious problems with this approach: people like to get their money earlier rather than later, so even if Seyfarth Shaw and other firms on the "list of shame" plan to make up for their failure to salary-match by beating the market at bonus time (including an additional amount for the time value of money), young associates with loans and other monthly expenses to pay might be unhappy, despite looking to the IRS just like their higher-salaried, less-bonused peers. Perhaps more importantly, letting people figure out over the year how much they want to work, instead of having a pre-set requirement at the beginning, would wreak havoc on planning. How can the partners know how much work to take on, if they don't know how much work will be done?

February 13, 2007 06:57 PM | TrackBack
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