Pop quiz for law students in Pennsylvania, New Jersey and Delaware. Other than pay, what’s the difference between:

Ballard Spahr Andrews & Ingersoll; Blank Rome; Buchanan Ingersoll & Rooney; Cozen O’Connor; DLA Piper; Dechert; Dilworth Paxson; Drinker Biddle & Reath; Duane Morris; Eckert Seamans Cherin & Mellott; Fox, Rothschild, O’Brien & Frankel; Hangley Aronchick Segal & Pudlin; Klehr, Harrison, Harvey, Branzburg & Ellers; Klett Lieber Rooney & Schorling; Marshall, Dennehy, Warner, Coleman & Goggin; McCarter & English; Montgomery McCracken, Walker & Rhoads; Morgan, Lewis & Bockius; Obermayer, Rebmann, Maxwell & Hippel; Pepper Hamilton; Reed Smith Shaw & McClay; Saul Ewing; Schnader Harrison Segal & Lewis; Stevens & Lee; Stradley, Ronon, Stevens & Young; Thorp, Reed & Armstrong; White and Williams; Willig, Williams & Davidson; Wolf, Block, Schorr and Solis-Cohen; Woodcock Washburn Kurtz Mackiewicz & Norris; and, Zarwin, Baum, Devito, Kaplan.

I saw a hand go up in the back. Wolf Block dissolved last week.

Oh. And what indications did you have that was going to happen? They cut associate salaries the month before.

The Legal Intelligencer has an article today about the biglaw recession hitting Philadelphia:

Managing partners have been complaining for years about increasing associate salaries, though in Philadelphia it ultimately became a good marketing tool to be the first in town to raise them.

The same rules don’t apply now that the pendulum is swinging the other way. The first to take an ax to associate compensation risks falling out of favor with law schools and future recruits. However, many see a compensation cut as an otherwise smart business decision that would serve as a "market correction" rather than an unfortunate result of the bad economy.

The article is filled with anonymous quotes from managing partners:

  • One firm leader said, "I could see $145,000 go to $100,000 in a nanosecond," though he wouldn’t be the first to do it.

  • "I don’t think it is cataclysmic," he said. "It’s just a market correction. It’s just the way, in merit-based compensation systems, some partners’ [compensation goes] down even when the firm is doing well."

  • "I think it just sends a bad signal," he said. "It’s a lot easier to put in a zero increase than to put in cuts."

The "nanosecond" partner doesn’t get it. If his firm drops salaries contemporaneously with anyone else, it won’t matter who went "first," it will be translated by associates as a warning that the firm is in financial trouble.

The "cataclysmic" partner doesn’t get it either. A merit-based compensation system that only adjusts downward, and only in times of economic distress, will not be construed as rewarding "merit." It is just a cost-savings measure aimed at less-productive associates; not necessarily a bad idea, but certainly not good from a marketing standpoint, and will also be translated by associates as reflecting stingy or distressed management.

And the reason why is reflected by the third quote. First, bonuses fall. Second, raises are postponed or frozen. Third, hiring is slowed. Fourth, associates are laid off. Fifth, new hires are delayed. Sixth, the firm starts cannibalizing its own resources. Do firms really want to broadcast to their current and potential associates that the firm has already gone through five different assaults on associates to no avail?

The BigLaw "leverage" business model lives and dies on churning through associates. Associates work the hardest, followed by equity partners, followed by income and non-equity partners. Without fresh blood, a BigLaw leverage-model firm stalls and crashes as rainmakers leap elsewhere.

I do not agree with this business model. I do not practice this business model. But I do know that wishing away its complexities and complications, such as the difficulty with which you reduce the salary of non-partners (a problem in every industry), will not make them go away.

Every firm that considers jumping on this bandwagon needs to understand that associates and potential associates will not see things as the partners do. You see prudent cost-cutting to clear a path for long-term success. They see Wolf Block.