Founding Partner, Michelle Foster, Featured by Law360 on Why The Law Firm Wage War May Soon Subside
/Why The Law Firm Wage War May Soon Subside
While 2022 kicked off as another bumper year for associate pay, legal recruiters and law firm consultants expect law firm leaders to pull back as they weigh rising expenses, inflation and the economic uncertainty looming from Russia’s war in Ukraine.
According to Law360 Pulse analysis, nearly 80 law firms have announced associate salary raises since Milbank LLP kicked off this year’s bidding war with a new round of raises in January, upping freshman starting salaries to $215,000.
The New York firm this month also bumped up its mid-level and senior associates’ rate again to match the prevailing scale set in February by Cravath Swaine & Moore LLP, which pays up to $415,000 for the most senior associates.
More than 50 firms have matched the Cravath scale, Law360 Pulse analysis showed. And among them, at least 40 were among the top 200 U.S. law firms on the Law360 400 list, four were U.K.’s Magic Circle firms and a handful are either Mid-Law or boutique firms.
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Some firms, including Ropes & Gray LLP, Debevoise & Plimpton LLP and Schulte Roth & Zabel LLP, have gone beyond the Cravath scale by including a tier of compensation of $425,000 for the class of 2013 and beyond.
But now, as uncertainty rises and firm leaders rethink budget planning amid Russian sanctions, recruiters and industry experts anticipate the matches will slow down, at least in the short term.
Law360 Pulse’s tracker showed seven more firms matched Cravath’s scale this week, a slight drop compared to last week, which recorded a dozen law firms making the move.
“For firms where it was a real stretch to meet the market and associate compensation because of their size and performance, it’ll be even more important for them to act with urgency to adjust to any prolonged slowdown and transactional activity,” said Kent Zimmerman, an adviser for legal consulting firm Zeughauser Group.
According to legal recruiters who spoke to Law360 Pulse, associate lateral hiring has started to cool off compared with the robust market in 2021. And despite some high-profile news of recent increases to signing bonuses for federal clerks, many law firms have also dialed back their signing bonus offerings as they “wait and see” how the economy and war crisis unfold, according to experts.
But as of now, many say they do not foresee layoffs on the horizon like the ones that followed the economic downturn during the 2008 Great Recession.
The increases in associate salary, particularly to mid-level and senior associates’ compensation, have also put pressure on firms to increase the pay for counsel and nonequity partners, Zimmerman and other market observers have pointed out.
However it is also not likely that firms will walk back the pay raises since it makes “economic sense” to compensate the senior associates who are billing at higher rates, said Vertex Advisors Group founder Robert Kamins, who advises law firms on management issues.
“As they get more senior as an associate, as a counsel, their billing rate is almost as high as a partner rate, but their compensation is not as high as a partner, so the firm’s profit is actually higher (than more junior associates),” Kamins said.
But the higher compensation may also lead attorneys to bill more hours, which could “arguably have the opposite effect of ultimately causing attorneys to leave because they feel increased billing pressure,” said Michelle Foster, founder of boutique legal recruiting agency The Foster Group.
Moreover, in addition to compensation, associates are increasingly considering other factors, such as career advancement opportunities, work flexibility and job security, when choosing their employers, Foster added. "
“During the pandemic, it’s been unusual in the sense that senior attorneys and counsel have become much more valuable because they can work independently,” she said.
https://www.law360.com/pulse/articles/1477557/why-the-law-firm-wage-war-may-soon-subside