By Amanda Becker
Monday, April 26, 2010; 15
When the Howrey law firm called its incoming associates into a conference room last June to announce it was breaking from industry custom and changing the role of its entry-level attorneys, there was a fair amount of apprehension. After all, the news came at a time when the economic downturn was forcing other firms to cut salaries or tell associates to delay their start.
But the law firm's move now seems prescient.
"Howrey was a first-mover, not a fast follower, here. And now we're going to see some other firms" doing the same, said William D. Henderson, an Indiana University law professor who studies law firm economics.
Instead of wooing first- and second-year attorneys with ever-higher salaries, Howrey set up a two-year program it called First Tier that offered new attorneys reduced salaries in exchange for more training. First Tier was the final step in a progression toward changing how associates advance at the firm.
In 2001, Howrey replaced its typical summer associate program with a "boot camp" for aspiring litigators. In 2007, it announced it would eliminate "lock-step compensation," in which attorneys are promoted en masse based on graduation year, and replace it with a merit-based system -- a move the firm completed at the beginning of 2009.
"What we're doing is asking these law students to go through some introspection to determine that this is what they'd like to do," said Eileen C. Billinson, a member of Howrey's executive team.
Howrey Managing Partner Robert F. Ruyak has compared the two-year program to a medical residency or accounting secondment, in which junior employees are loaned out to clients for a set period of time. First Tier associates earn less money -- salary of $100,000 annually, plus a $25,000 completion bonus or student loan stipend -- but attend structured training sessions, shadow experienced attorneys, have access to an on-site writing consultant and spend three-month stints in clients' legal departments, all at the expense of the firm. Once the First Tier is completed, salaries return to market rates and associates proceed through the remaining four stages of their career ladder based on merit, on their way to be considered for partnership.
Notably absent from First Tier is an emphasis on billable hours. Instead of asking associates to reach a target of 1,700 billable hours or more, Howrey caps hours spent on client work at 700 and bills clients for the associates' work at lower rates. Billinson said skyrocketing associate salaries created a "tension" between billable hours and training -- some firms were paying $160,000 a year, too expensive for associates to spend hours in training when they could be billing. Yet clients were increasingly unwilling to pay $300 an hour for junior associates to learn on the job.
Hiring Partner Richard A. Ripley said the combination of lower billing rates and more training has prompted several clients to wave policies against working with first-year attorneys.
"Because of the billing structure for first-years, [clients] don't have to be as cost-conscious or worry," said first-year associate David Shaw, who drafted a substantive motion for a client earlier this year.
What saves clients money costs the firm. Like many firms, Howrey's gross revenue and profit per partner dropped in 2009, by 16.3 and 34.9 percent respectively, according to figures compiled by the American Lawyer. Ripley said the costs of the program -- more infrastructure, lost revenue from fewer billable hours at lower rates, lengthy client visits -- will be ongoing. "The long term here is really key," Ripley said.
So far, Howrey continues to draw interest from potential new hires.
"This is obviously not as competitive of a labor market as it was a couple of years ago, and I'm not sure whether it would have been perceived differently in a stronger market . . . but Tier One certainly didn't dissuade students from pursuing interviews with the firm," said Kevin M. Donovan, a senior assistant dean at the University of Virginia.
Other firms have announced plans to tweak lock-step or move away from the compensation model entirely. Philadelphia-based Drinker Biddle has a six-month training program at a reduced salary in place. Orrick, Herringon & Sutcliffe said in December it would establish three merit-based tiers for associates, but still start attorneys at market rates. WilmerHale, Holland & Knight and Dickstein Shapiro are among other firms that intend to do away with lock-step advancement.
Though many firms are still in the initial planning stages, the interest within the industry is clear. "I get an awful lot of lunch invitations that turn into something more like depositions," Billinson said.