Show Me The Money!

Show Me The Money!

Money shouldn’t be the primary motive for a career move, but it’s an important factor. In a down market, lawyers have little bargaining power; but in good times, law firms compete financially to hire and retain the best and the brightest. Historically, elite New York law firms led the pack in associate salary and bonus increases, and other firms struggled to keep up. The rationale is that, in a very competitive marketplace, prominent law firms throughout the U.S. want the same lawyers and can’t risk losing the most desirable candidates because of money.

History

Historically, associate salaries increase during good economic times, and either stagnate or decline during downturns. For example, during the dot-com boom of the late 1990s, the most competitive firms raised salaries for first-year associates to $125,000 base, plus generous bonuses. Then, base salaries remained flat for about five years, when the dot-com bubble burst and there was less competition to hire and retain armies of new associates. Firms offered signing bonuses or attractive year-end bonuses, as necessary, to entice the best and the brightest, while holding the line on salaries.

Again, as the economy heated up after 2006, and there was a need for large numbers of junior associates, firms engaged in a salary war. Base compensation for entry-level associates at the top firms rose to $145,000 and then $160,000 by 2008. During the downturn following the financial crisis of late 2008, base compensation for new lawyers remained frozen at $160,000 at the top firms, with a solid second tier paying $145,000.

Only in mid-2016 did associate base salaries rise significantly again when Cravath led the pack to $180,000. Virtually all major firms and top boutiques followed suit, with a few even exceeding it by $10,000 or more to set themselves apart. Over the next several years, the associate compensation wars centered around the size and number of bonuses awarded annually, while the base remained pretty much stagnant.

In 2021, with the post-pandemic rush of legal work and the need to make up for hiring freezes or slowdowns instituted in 2020, first-year base salaries at top firms exceeded $200,000, and eighth-year associates rose well into the $300,000s. Adding year-end, mid-year, and signing bonuses, total cash compensation of senior associates at the most profitable firms topped $500,000. In super-competitive cities or practice areas, signing bonuses to entice laterals could be astronomical, as well.

Note: These numbers apply only to the top Am Law ranked firms, not the majority of U.S. law firms. Smaller and regional business law firms usually pay somewhat less than megafirms in the same markets. Firms in less competitive markets and practice niches can pay significantly lower.

Geography

The associate salary wars usually originate in New York but, in a strong legal market, top law firms between the coasts and outside of large cities also feel the pressure to raise their associate salaries. They may not need to go quite as high as their urban counterparts, however, because the cost of living in those areas is much less. A lower base salary outside of the major metropolitan areas often is better or equal in buying power than the highest compensation at top tier urban firms. For example, adjusted for the cost of living, New York City associates earning top dollar for high billable hours can make significantly less per hour in actual dollar-power compared to associates at comparable firms in the Midwest, which pay less but require fewer hours.

In the past, it was not unusual for firms to recognize the geographical differences in buying power by adjusting attorney pay in their various offices accordingly. With the increase in remote working, however, many firms eliminated geographical pay differentials. Therefore, some savvy lawyers transferred to their firms’ office in secondary markets, or moved away from the big city while continuing to work remotely for their current employers.

Reality

Astronomical associate salary figures may not be as attractive as they first appear. The money must come from somewhere to pay those inflated salaries and bonuses. As compensation goes up, often associate billable hour requirements and/or billing rates increase, too.

Personal tradeoffs of higher billable hours include lost time with family and friends, missing major life events with loved ones, and even negative impacts on the attorney’s physical and mental health. Moreover, firms may make it even more difficult for lawyers to achieve equity partnership.

Institutionally, BigLaw might suffer in the long run because the expectations that come with those high salaries may dissuade lawyers from choosing BigLaw practice, moving instead to smaller firms, virtual law practice, or in-house. Many associates will seek to leave as soon as possible once they garner a few years of BigLaw training and pay down their educational loans a bit. That exodus can lock firms into a never-ending spiral: With fewer attorneys willing to practice in the BigLaw environment, competition for talent—and escalating salaries—will continue to go even higher.

Furthermore, clients may choose not to underwrite BigLaw’s salary wars, and refuse to pay higher fees to finance those raises. At minimum, they might balk at paying for the work junior associates bill on their matters since, in reality, those associates are being paid handsomely to learn on the job. Or they may hire additional lawyers themselves and keep more work in-house.

Once the hoopla over money dies down, however, associates are left with the realities of their jobs. So, when considering a job change, a wise lawyer looks beyond the salary negotiations and focuses on the opportunity itself. Although it’s tempting to go for the gold, money isn’t everything.

Valerie Fontaine
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