Layoffs breach the social contract between the firm and its professionals and staff, meaning they fall disproportionately on associates, business professionals, and staff and plant enduring memories not just in the minds of the targets but across the market.
Probably the most enduring one is the current shortage of senior associates and junior partners — a lost cohort — which has created a scramble among firms to fill those very necessary ranks. The moral may be obvious but bears stating in these stressful times: As best as you can, assess both the short- and long-term effects of your actions.
Now, to what we strongly recommend: Across-the-board reductions in compensation and freezing all partner draws.
Freezing partner draws should be easy: First, a draw comes from anticipated profit, and who knows what that number will look like by year-end. Second, we find it challenging to justify how a responsible manager could pay out cash on hand for what is essentially a privilege of being an equity partner. Yes, partnership agreements and other contracts may specify which partners are entitled to what share or percentage of profit, but if you can’t forecast that number with any confidence, it seems flatly imprudent to part with the cash now.
But third and most important: At least as of about six weeks ago, equity partners in law firms were doing better financially than about 99% of their fellow Americans. Asking them to line up in solidarity shouldn’t be too hard an ask.
As for the reductions in compensation across the board: Yes, across the board — meaning imposed on everyone from senior partners to associates, business professionals, and your receptionists, but not a flat percentage across the board. Make it progressive such that most senior and well-compensated people take the largest haircut and the lowest-compensated take the smallest — ideally for the latter group, make it a token amount. (That’s not where the real money is to begin with.)
So, how you characterize the haircut in compensation: As a hard and fast amount, never to be recovered, or as a deferral? Unless you have a better crystal ball than anyone else from the Council of Economic Advisers on down, do not announce it’s a deferral. Immensely preferable to repay it later, as an unforeseen bonus, when humanity emerges from this tunnel and you’re firing on all cylinders again. Meanwhile, preserve your options.
A final thought: Amid the equal-opportunity virus itself to social distancing, hand-washing, wearing masks, and all the other drastically changed routines of our daily life, it’s important to remember that we are all in this together — this is larger than the ego of any one of us.
As law firms, as families and neighbors, as cities and a nation — it’s a time of shared sacrifice. People understand that and can and do want to rise to the occasion. We all long for meaning in what we’re going through. Shared sacrifice may not be the meaning we had in mind, but it will have to do for now. It is, full stop, our reality.