Freshfields times it perfectly with pay freeze announcement
Important ;events happen at high noon. If you were working at Freshfields Bruckhaus Deringer last Monday, then at midday you would have received some bad news about your salary in an email from London managing partner Tim Jones.
A few minutes later you would have been called into a departmental meeting chaired by the partner in charge, confirming that the firm’s pay bands would be frozen from May (see story).
After that, another meeting, this time with individual partner teams, in which general concerns would be aired. Then maybe a quick baguette at Paul on Fleet Street.
Freshfields has become the first City operation to reverse its associate salary bands. The firm is using the term ‘pay freeze’, but some lawyers may see it as an effective reduction in pay. The salary paid to newly qualified (NQ) solicitors will drop from £66,000 to £59,000. An associate with two years’ PQE will stay on £73,000 rather than the £86,000 they might be expecting from moving up a band. The pay freeze will take effect in May.
Lawyers qualifying at the magic circle firm this year are cursing their bad luck. After watching a brutal salary and bonus war between City firms from the sidelines of law school a few years ago, they hit the profession just as the good times are fading.
Despite this, the partners confirmed that there would still be a bonus pot on offer, with performance-linked payouts decided on a discretionary basis with individuals by June.
Say what you like about the decision, but the timing of the announcement was near perfect. Coming just after the launch of unprecedented redundancy programmes at rivals Clifford Chance and Linklaters, Freshfields almost looks like the good guy next to the bad and the ugly.
Most lawyers would prefer to be paid the same and keep their jobs rather than take a one in 10 chance of redundancy. Whether the Freshfields management intended it, or whether it was just good luck, is up for debate.
“Probably, to be honest, the partners would never say never, but we’re quite happy not to be in a Linklaters New World situation,” says one Freshfields associate. “I think there’s a genuine desire to avoid redundancies. Partners have said that their profits will be taking a hit.”
It is likely that other City firms will follow Freshfields’ lead. White & Case followed suit and has already frozen its lockstep, keeping first and ;second-years ;on £86,000 and £97,000 respectively. Come May there could be a raft of City firms doing the same.
Allen & Overy, Ashurst, Clifford Chance, Herbert Smith, Linklaters and Lovells have all said they are yet to make decisions on salaries. But none ruled it out.
A spokesperson for Linklaters says: “We’ll be reviewing salaries and bonuses, as we do annually, in line with the market.”
The market is not good. If Freshfields’ ulterior motive was to reduce its associate headcount organically by letting unhappy associates leave of their own accord, then that strategy will backfire. Few will take the leap into choppy waters.
An associate at the firm says: “People are taking time to think about what they want to do. It’s by no means a recruiting market. People will wait and see as to what happens with the bonus.”
But the real danger for all law firms taking measures to protect profitability in a recession, whether via redundancies or pay freezes, is that an ‘us and them’ culture develops between the associates and the partners. It could erode firm loyalty and see good people leave, ultimately proving to be a false economy when the firm tries to hire in an upturn.
“The general feeling, as you’d expect, is a bit mixed,” are a Freshfields associate’s comments on the divide between the rich and the slightly less rich. “There’s a bit of a split between the seniors and the juniors. On balance, a few people saw it as a surprise, but accept it if the measure helps to avoid redundancies.
“On a macro level, you can see it makes sense, but obviously on an individual micro level it can be different. For a lot of the associates here it’s their first major recession and it takes a bit of adjustment.”
A pay freeze comes with a lot of emotional baggage, but it is ultimately about
the management seeking certainty in a new era of unpredictability.
Freshfields will not be able to accurately predict revenue for the next few years. But it can at least turn its biggest variable cost – salaries – into a fixed cost to minimise damage to profitability.
For an opinion on the pay cuts from Freshfields London managing partner Tim Jones, click here.
To receive our free Lawyer News Daily news and comment email, click here. Or get the latest news, features and comment as it's published with our free RSS feed.
View results 10 per page | 20 per page
Readers' comments (17)
Anonymous | 16-Feb-2009 1:43 pm
chance of redundancy
"Most lawyers would prefer to be paid the same and keep their jobs rather than take a one in 10 chance of redundancy."
Seriously? I think that's assuming a lot.
Unsuitable or offensive? Report this comment
Anonymous | 16-Feb-2009 4:19 pm
one in ten
I agree.
99.9% of lawyers are arrogant enough to be pretty sure that they would be among the nine in 10, rather than the one.
Unsuitable or offensive? Report this comment
Anonymous | 16-Feb-2009 4:22 pm
Adolescence at the keyboard
I'm offering here not so much a comment about this particular article, but a comment on how egregiously simple-minded most of The Lawyer's coverage about law firms' responses to this quite notable recession has been.
The general editorial tone of The Lawyer's commentary has been consistently adolescent, along the lines of "OMG, they're freezing associate salaries, laying off lawyers, and generally reducing costs. How COULD they?"
Your editorial perspective is truly beneath what I hope for from business / legal journalists. If occasional serious analysis isn't too much to ask for, I'd suggest for starters that you go back to the 1990-91 recession and take a look at what happened then -- and what happened during the next five years -- and then decide how inappropriate (or not) most law firms' responses thus far have been.
I also respectfully suggest that you ask a grown-up to look at your work before you push the publish button.
Unsuitable or offensive? Report this comment
Anonymous | 16-Feb-2009 4:34 pm
About Time
For many years the big circle associates have had it easy. Big clients easy billable hours, and a shortage of associates meant the gravy train ran far longer than it should. The tide has turned stop moaning and start earning your crust like the rest of us or you will be down the road.
Unsuitable or offensive? Report this comment
Anonymous | 16-Feb-2009 4:40 pm
Adolescence at the keyboard
Adolescence get a life lad, the articles in the Lawyer are spot on, and reflect the times. I know you may well be wary of losing your job. As Norman Tebbit said get on your bike, and eventually you will find something albeit not in publishing I suspect.
Unsuitable or offensive? Report this comment
Anonymous | 16-Feb-2009 4:44 pm
Adolescence at the keyboard - SECONDED
A rousing cheer to the previous poster. "when one of Europe's four biggest firms puts an end to a culture of pay rises that has characterised its peer group for most of the last decade, it's something of a sign of the times". Would you say the same about one of Europe's biggest banks that managed to avoid laying people off by reducing or eliminating bonuses this year despite the bonus culture of the past? Or one of the world's biggest automakers?
Magazines like "The Lawyer" exist due to the realisation that law firms are a business like others. Maybe it's time we actually cottoned on to this.
Unsuitable or offensive? Report this comment
Greg | 16-Feb-2009 4:54 pm
the lawyer
I can't see what your point is. the magic circle HAS paid bonuses for most of the last decade, this move IS an end to that.. what has it got to do with banks or anyone else? doesn't sound like an opinion, just facts
Unsuitable or offensive? Report this comment
Anon. | 16-Feb-2009 5:02 pm
the lawyer
the lawyer often has a kind of sixth form socialist attitude in its columns about cash (when it isn't knocking good firms for low PEP), but i think this was fair enough. besides, freshfields hav even written their own response!
Unsuitable or offensive? Report this comment
Anonymous | 16-Feb-2009 5:07 pm
RESPONSE TO GREG
Without meaning to turn this into a chatboard, the point of the original "adolescence" poster was that the Freshfields partner was saying "we have managed to avoid large-scale redundancies by freezing salaries; is that such a big deal?" while The Lawyer's response was "Yes, it IS a big deal, look at all the associates complaining that it is "really" a pay cut", with a clear implication that the associates were justified in their complaint
If any other major business currently affected by the crisis had managed to do the same it would be lauded for its efforts by any major business publication and employees who said "they are screwing us by freezing our salaries" would hardly be portrayed as justified.
Unsuitable or offensive? Report this comment
Greg | 16-Feb-2009 5:13 pm
Really?
I think you're reading something into it that isn't there - the reason they gave in the news email was that the freeze was a 'sign of the times' because it was the end of pay rises every year that we've come to expect. Which is fair, isn't it? Why assume a reason that they haven't given and ignore the one they have?
Unsuitable or offensive? Report this comment