The Foster Group Featured in Law.com on "How Midsize Firms Can Compete In Wake Of High Payouts For Associates"
/How Midsize Firms Can Compete In Wake Of High Payouts For Associates
In response to recent raises to associate base salaries, midsize firms that can’t match will reinforce the message that their associates have an accessible and meaningful career path, write Pro Mid Market columnists at recruiting firm The Foster Group.
The end of the calendar year is the season for bonuses in the legal field. This year, lawyers at many firms received a pay increase in addition to year-end bonuses, a move triggered by the ongoing competition for top legal talent. As reported in The American Lawyer, a number of top firms, including Cravath, Swaine & Moore, and Milbank, gave out salary increases of as much as $20,000 for senior associates.
The increases came in addition to year-end bonuses that ranged between $15,000 and $115,000. The trend in salary increases follows a familiar pattern in which raises offered by a market mover have a ripple effect throughout the field. In the aftermath of an initial announcement, peer firms provide their own increases to keep pace with the pack and avoid falling behind their competitors.
According to The American Lawyer, Milbank took a lead role by announcing raises and bonuses for its associates in November. Cravath, Swaine & Moore followed suit with higher increases, which prompted Milbank to announce a second round of raises.
How market movers affect the rest of the field
Market movers like Cravath and Milbank set the pace for pay scale changes. Adjustments are triggered by market leaders whose activities are closely watched and assessed by many firms. To stay competitive in the talent market, many firms make the decision to follow suit, resulting in the emergence of a new compensation model that updates the market scale.
Generally, the shift triggered by market movers will cascade throughout the legal industry. However, geography can have an impact. A firm can adopt the new market scale but not apply it in all of its practice locations.
The latest shifts have been adopted primarily in major markets, with comps varying broadly elsewhere. Recent reports reveal Austin, Boston, Chicago, Dallas, Houston, Los Angeles/Orange County, New York City, San Diego, San Francisco, Silicon Valley and the Washington D.C. area have adopted a new median starting salary of $215,000. In other regions, starting salaries may be as low as $145,000.
Top firms tying bonuses to onsite attendance
Some reports on the latest wave of compensation adjustments also suggest they come with a caveat. According to The American Lawyer, top firms - including Davis Polk and Simpson Thacher & Bartlett - are reported to have said associates who fail to comply with the firms’ in-office attendance requirements may have bonuses cut.
Reports in early 2023 named Davis Polk as one firm that would tie year-end bonuses to compliance with such policies. The reports cited changes to the firm’s employee handbook that indicate failure to comply with “the operative in-office attendance policy” could result in disciplinary action, including “withholding or reduction of a discretionary bonus.”
Bonuses are typically also tied to hours billed, with the initial qualifying range generally falling between 1,900 and 2,000. While hitting those metrics is often required for eligibility, firms can be creative when applying this aspect of compensation. In many cases, firms incentivize top billers by providing additional bonuses for those who exceed certain thresholds.
How the middle market is responding
While the shifts in compensation and benefits within the Am Law 50 and other top-tier firms may look very different from the rest of the market, the market as a whole will feel pressure to adjust in some fashion. Those who don’t risk being overlooked by incoming talent and potentially losing the talent they have already recruited.
Middle-market firms, in general, are responding with more competitive compensation arrangements. While mid-market firms may not be able to match the new market-comp scale, the overarching trend has certainly moved the needle for associates who practice there. The significant percentage increases emerging in that space are meaningful to mid-market associates, who tend to understand their firm is unlikely to match the compensation market movers offer.
Mid-market firms are also responding to the pay-scale shifts by emphasizing the non-financial benefits mid-market firms offer that larger firms can’t. While these benefits don’t translate to immediate rewards, they can potentially appeal in the long term to attorneys those firms are looking to recruit.
Long-term career development and advancement is not merely a talking point, but a reality that middle market firms can promote and deliver on. For attorneys seeking a true career path and support in their journey toward partnership, this factor is particularly meaningful. Attorneys are increasingly seeking firms that will not only provide a path to partnership, but will also assist them in growing their practice. Mid-market firms can support those goals and make them achievable by offering flexible billing rates and staffing models, which are rarely found at Big Law firms.
Mid-market firms are also typically able to operate more nimbly, providing a variety of alternative fee arrangements. Consequently, mid-market firms can be more creative regarding client billing arrangements, which makes it easier for an attorney to originate work and build a practice.
First-hand learning experience and substantive responsibility are other benefits mid-market firms offer. In the mid-market environment, matters are less leveraged than in Big Law, with associates working in smaller teams and gaining valuable exposure to the lead partner and client. This typically results in associates getting substantially more hands-on experience than they will find in a Big Law setting.
That type of exposure is invaluable to up-and-coming attorneys who need to gain first-chair experience and learn how to develop case strategy or run a deal independently. At middle market firms, associates are given entree to managing clients and development business. At Big Law firms, associates in the same stage of development are often only exposed to a segment of a deal or matter, finding themselves in the back seat with much less visibility on the matter and less face time with the Partners and client.
The opportunity to focus on business development that mid-market firms are more capable of offering can lead to better earnings over the long term, even if it means attorneys choosing that route aren’t making the salaries offered by market leaders. While year-end associate raises are gratifying - and helpful for attorneys facing the living expenses associated with big cities - they are ephemeral, lasting only as long as the attorney remains a Big Law associate. Associates focused on leveraging the flexibility of mid-market firms to increase their earnings by building a practice can advance their careers in a way that will ultimately be more valuable than a one-time Big Law salary increase.
Making informed decisions that improve market position
Overall, mid-market firms face significant calculations when it comes to how they respond to these Big Law compensation movements. Recruiters and others with behind-the-scenes information on how the latest news affects attorney sentiment can provide invaluable insight for shaping new policies. Friction like that introduced by year-end compensation shifts always creates movement in the market. Obtaining an informed understanding of how movement flows and why is critical for firms that want to emerge stronger on the other side of the shift.
While no one is surprised to see year-end salary increases, the percentages announced by Milbank and eventually adopted by top firms came as a surprise to some experts. Compared to the boom years of 2021 and 2022, 2023 was relatively calm. The move to attract and secure top talent with the recent compensation shifts is seen as a sign that leading firms are anticipating an uptick in the corporate and deal markets in 2024, with the increased legal spend justified by the complexities of the global market.
For mid-market firms, the decision to increase compensation is, in some ways, a response to the impact the 2021-2022 boom had on the associate market. Many middle market firms saw their associate ranks raided by Big Law firms and are not eager to relive that experience. As a result, they have proactively implemented structural and policy changes to get ahead of future recruiting surges. Firms that can’t match dollar for dollar with bigger firms will fall back on reinforcing the message that their associates are valued and have an accessible and meaningful path forward.