Why Penny-pinching Doesn’t Pay Off

Filtered or tap? It started with an unofficial survey regarding who drank the bottled water in the office. Then one day, the spring water was gone. Next, the hot chocolate mysteriously vanished, and suddenly (horror!) the free soda machines only took quarters. Finally, one by one, the employees also started to disappear.

The aforementioned events actually occurred at a New York-based firm—a boutique-sized bureau with 25 to 50 attorneys. After the notorious water survey, it took exactly one day for the first associate to give notice, and many other associates followed (pinstriped) suit tendering their resignations. Although my assistant may be a closeted conspiracy theorist with her own opinions about government contaminants in tap water, I don’t believe these employees were insane water purists and I bet they could live without hot chocolate. However, the reduction in small employee perks can signal bad business practices on the part of the firm. Though specializing in corporate and commercial litigation, this firm clearly did not understand the true market price of commodities, like bottled water. Penny-pinching—or simply the appearance of it—can start a panic, make employees fear for their jobs and flee. Worse, the savings are not worth the damage done.

Penny-pinching saves just that—pennies. If your firm is looking to cut resources, maybe the smaller items are not to blame for blowing the budget. For example, a five-gallon bottle of natural spring water is $6.99, which, refilled every week, costs the firm $364 a year—or, the price of one first-rate meal for two partners and two clients. If 10 packets of hot chocolate, at $1 a packet, were drank every work day for a year in 2010, the cost to the firm would be $2,610—or, the price of one business class ticket from San Francisco to New York City. A four-flavor countertop soda dispenser is $2,254. Add $18 for CO2 refills every month and $60 for syrup to yield 30 gallons of name-brand soda. This amounts to $2,530 for the first year and $276 for each subsequent year.[i] However, what is the cost of replacing, re-training, and retaining a young associate disgruntled by said water incident? Significantly more than $5,504 in foods stuffs.

If you need to replace a first-year associate, firms—you’re out of luck. Median starting salaries for associates have been steadily increasing. From 1996 to 2009, median salaries for first-year associates within firms with 26 to 50 lawyers saw a 78 percent increase, according to NALP’s 2009 Associate Salary Survey[ii]. Large firms in New York or Chicago, for example, underwent a 107 percent change for the same time period. So, if you’re a mid-sized firm replacing a young associate hired in 2007, expect to pay $11,500 to $14,000 more a year for your new associate’s base salary. And, forget the money it took to woo them in the first place—to a firm tainted by large turnover and a reputation of devaluing their employees. Additionally, the new associate, now earning $104, 000 a year, will likely operate three months at marginal efficacy while they’re mounting the learning curve. This includes adapting to your specialized technology and absorbing the complicated histories of your cases. In the end, there are countless other fixed costs on the firm—benefits and social security payout, new business cards, name plates, painting office space, welcome lunches, etc., etc. Ergo, in the time it took your previous associate to board a plane and live out their savings in Bermuda, you’ve spent over $40,000 on a new hire—or enough hot chocolate to last the firm 15 years.

If your firm can’t even afford the hot water it’s in, maybe it’s time to start examining larger issues at hand, such as library resource spending, upgrading technology (sometimes you have to spend to save), or hiring practices. And if that doesn’t work, consider seeking a professional legal consultant for help.

[i] Kinch, Richard J. “Carbonating at Home with Improvised Equipment and Soda Fountains,” Updated as of January 2011.  kinch@truetex.com. http://webcache.googleusercontent.com/search?q=cache:UDuE4A8GVlAJ:www.truetex.com/carbonation.htm+countertop+fountain+drink+system+refills&cd=2&hl=en&ct=clnk&gl=us&client=firefox-a&source=www.google.com

[ii] http://www.nalp.org

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2 responses to “Why Penny-pinching Doesn’t Pay Off

  1. Pingback: New Business Models: Avatar Lawyers Still Too Space Age For Today |

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