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March 19, 2009 3:26 PM

Katten Announces Layoffs, Salary Cuts

Posted by Zach Lowe

Update, 3/19/09 at 3:44 p.m. - The first and second paragraphs below were modified to include the specific billable hours target the firm sets for associates, sent to The Am Law Daily shortly after our original post.

Katten Muchin Rosenman announced today that they have laid off a total of 23 lawyers and 46 staffers, but what's more interesting are the steps the firm says it's taking to avoid further layoffs: namely, cutting salaries by 20 percent for associates who did not bill within 200 hours of their billable hours target (2000) in 2008.

The firm generally declined to comment beyond a statement sent to The Am Law Daily this afternoon. Associates who have their salary cut by 20 percent can get themselves back up to their regular pay levels going forward if they hit their billing targets. So, yes, the tyranny of the billable hour continues. We checked with a firm spokesman, and he explained that associates can actually earn back the 20 percent of their salary that's being cut, meaning that, if they make certain billable benchmarks, they won't end up taking a pay cut at all.

"We believe our decisions today will allow us to cut costs while saving jobs and keeping our strong practice teams intact,"  Vince Sergi, Katten's national managing partner, said in the statement sent.

Other cost-cutting moves at Katten: Summer associates will work eight weeks, down from ten; summers will also see their salaries cut by 20 percent; and incoming first years won't start until Feb. 1, 2010. 

Of the 23 attorneys that lost their jobs today, twelve are associates, seven are nonequity partners, and four are staff attorneys and counsel.

This is the second round of layoffs for Katten. In the fall, the firm laid off 21 associates and counsel across the firm. Preliminary numbers show that Katten's gross revenue dropped about 1 percent in 2008 to $456 million while revenue per lawyer held steady.

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How'd you like to be a Katten client with one of those associates whose hours were cut working on your case. Can you say "bill padding"? How can any GC justify using a firm that creates such a blatant incentive for overbilling by cutting associates' salary by a fifth subject to restoring the cut if they bill more hours?

There are plenty of ways for clients to mitigate such overbilling. It is a non-issue except for those clients who are not paying attention or do not know how to manage their legal costs. I would expect GCs worth their salt do not see this as a reason to shy away from using a particular law firm.

This may encourage the K-M associates to use a 'heavy pencil' (and they wouldn't be the first, or only, to do so). However, it is very possible for these lawyers, and others, to capture an additional 100-200 "honest" hours/yr of billable time by disciplining themselves to be diligent and write "everything" down, or by using an intuitive software program to tag, track and report time spent, especially the "short" duration work activities (such as email) which result from multi-tasking in the electronic workspace.

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