DLA to cut pay of US partners by 11.5%

DLA Piper has informed all of its US partners that the firm is to reduce pay for most of them by 11.5% in 2009, while strong performers will get more money.

The move applies only to the firms US operations, which has a total of 1,380 lawyers. US managing partner Terence O'Malley told Legal Week sister title The Recorder that the firm's projects revenue will fall by 7% in 2009 and profits will drop by 6%.

"We are pleased with how we are performing relative to the competition, but it is a tough economic environment," O'Malley said. "We are conservatively budgeting this year to be a down year."

DLA Piper's pay cut is part of an annual budget projection process and is not related to the firm's 2008 results. The firm ended 2008 with zero debt and will end 2009 with zero debt, said O'Malley.

For 2008, DLA reported a 6.4% increase in profits per equity partner to $1.3m (£893,000), while revenue per lawyer was up 2.8%. In November the firm said it would ask its 275 income partners to contribute capital.

O'Malley said the move was intended to help the firm reduce its reliance on banks. Its main lender was Wachovia, which was absorbed by Wells Fargo in October.

"The lesson we learned from watching Wall Street was to not be dependent on banks, because they are not always going to be there. Our decision was to have less debt and be less exposed to the vagaries of the credit market," O'Malley said.

Many firms rely on some revolving credit throughout the year because collections are heavily weighted toward the end of the year. Some firms only tap into their credit lines for a few days or weeks at a time, once or twice a year.

DLA is the second firm to acknowledge reductions in partner payouts. Dewey & LeBoeuf said last week it had cut partner compensation for one-fifth of its 350 partners over the last 15 months, some by as much as 80%, to weed out low performers.

DLA's move is neither surprising nor unusual, said consultant Richard Gary, a former chairman of Thelen.

"There is a consensus that revenues will be down in 2009," said Gary. "The reason is that lawyer headcount will be lower. Most firms are laying off associates and, in probably a quieter way, partners as well, and therefore with headcounts down, revenues will inevitably be lower. There are fewer people producing billable hours."

DLA cut 80 associates and 100 staff from its US offices in February.

Gary also noted that stagnant billing rates and collection problems will also likely place downward pressure on revenue and mean pay cuts for partners at many firms.

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The Recorder is a US sister title of Legal Week.

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