Now that we’re done shoveling snow, we can turn to this interesting article from yesterday’s Wall Street Journal. The theme suggested by its title, “Big Law Firms Keep Lid on Associate Bonuses,” is hardly new or suprising. Given the overall economic climate, nobody really expected associate compensation to skyrocket. What’s worth noting however is this little graph from the Citi Private Bank Law Firm Group:
Basically, there are 6.7% fewer associates than there were a year ago. And each of the remaining associates is billing just over 7% more hours that they were a year ago. Cool. Let’s do the math. If you have 93.3% as many associates now as you did in 2009, and if each of those associates is doing 7% more work, then that’s (93.3% workforce) x (107% of your baseline utilization rate) = 99.85% of 2009′s total production billed in 2010. So, despite all the upheavals in the industry, despite the layoffs and the client demands and the loss of transactional work, associate hours at the 50 highest-revenue firms ended up exactly where they had been the year before. Within fifteen-hundredth’s of a percentage point, anyway.
Neat, huh? Like much of the rest of the economy, large law firms contracted their work forces and are now trying to squeeze additional productivity out of their remaining employees…except in this case, “squeeze additional productivity” seems to exactly equal “make them work longer.” And last year they managed to do so in such a way that they ended up with the exact same aggregate productivity as the year before. Which begs this question: how sustainable is this? While those with jobs are certainly glad to have them, the article suggests that the associates are less than thrilled with the new math. Associate job satisfaction is at its lowest point in six years (despite the just-be-glad-you-have-a-job effect) and fell last year at 109 of 124 surveyed firms. That indicates that another 6.7% de-leveraging probably won’t lead to another 7% increase in associate utliization. Further deleveraging will likely impact revenue.
So, assuming that firms may be approaching their maximum utilization rate for associates, here’s the question that they face: as the economy recovers and client work picks up, will these firms re-leverage their way back towards previous, full employment levels? Or, like other businesses, will they explore technological innovation and process efficiencies and other new ways to become more productive?