Clients’ Rate Concerns Slow the Spread of Associate Pay Bump


Salary boost for law firm associates starting to spread to other firms

But question remains how clients will react to higher billing rates


When Cravath, Swaine & Moore broke a near-decade long drought in associate raises two years ago, other BigLaw firms galloped to catch up with a move that set starting salaries at $180,000. But the latest effort to push up pay another $10,000 has drawn a modest response.

Around half a dozen firms, including Proskauer Rose, Simpson Thacher & Bartlett, Winston & Strawn, Irell & Manella, and litigation boutique Hueston Hennigan have stepped up to say they will match the new salary level for freshly minted lawyers set by Milbank, Tweed, Hadley & McCloy this week.

Others have been slower, or may not come forward at all, as firms try to navigate the shifting business conditions.

Such large salary boosts can be costly, and it’s one that often is borne by the law firm. Corporations are reluctant to underwrite the six-figure salaries for lawyers straight out of law school.

Some legal industry experts say they are puzzled about the raise, which Milbank justified on grounds that it needed to pay more to recruit top talent for the complex legal matters it handles.

“I understand that law school graduates have more choices in where they want to work, but the raise has left me scratching my head,” said Bruce MacEwen, who heads Adam Smith, Esq., a law firm consultant, and an expert on firm economics.

“They have drawn a new line in the sand,” he said “and law school grads will notice that. But I don’t think it will be appreciated by clients, who simply don’t want to pay for it.”

‘Testing the Limits’
James Jones, a senior fellow at Georgetown law’s Center for the Study of the Legal Profession, agreed that clients would not be happy. Firm billing rates for the largest 100 law firms rose last year, and an across-the-board raise could indicate another hike in billing, he noted.

“This is testing the limits,” said Jones. “It remains to be seen if clients will accept another big increase this year.”

The cost for an across-the-board raise for law firm associates can easily reach $20 million a year.

It’s not that the most elite law firms do not have the money.

Dozens of the BigLaw firms are doing well, and greatly outpacing some smaller firms. Milbank, for example, is among the top 10 most-profitable firms, following close behind heavy hitters like Paul Weiss, Cleary Gottlieb, Davis Polk and Cravath, the former pay raise leader.

It has been silent to date and Kirkland & Ellis, which is the top firm earner—surpassing the rest with more than $3 billion in annual revenues—has made no move to date to plump up associate salaries.

The firm, which began in Chicago, didn’t respond to a query about its associate compensation plans. However, Kirkland has been on a hiring tear, bringing on a load of big name partners laterally and giving them steep pay premiums.

Sandra Goldstein was hired recently from Cravath, and is reportedly being paid some $11 million annually for five years, in addition to any signing bonus she negotiated with Kirkland to come aboard.

Hard Work Rewarded
Simpson Thacher, which is in the $1 billion yearly revenue league, joined in the salary raise movement by announcing June 6 that it would match Milbank’s $190,000 starting pay. And the firm threw in some bonus money for summer associates, who receive prorated first-year pay, as well as mid-year bonuses starting at $5,000 for first year associates. The most senior associates would receive $25,000 each as a bonus.

The firm’s largesse was awarded for hard work, said firm chair Bill Dougherty in a memo to associates.

“You are working incredibly hard, and we want to recognize your contribution to the firm’s success. Thank you for your hard work and professionalism,” he wrote.

At Winston, managing partner Tom Fitzgerald also cited hard work as a main reason for lifting associate salaries.

“The increase in salaries recognizes the talent and hard work of our associates and their commitment to legal excellence and client service,” he wrote in a memo to associates. The salary boost, he and two other firm leaders, wrote in addition to the firm’s parental leave benefits, “reflects our commitment to recruiting and maintaining a talented, diverse and energetic team of associates and the next generation of leaders.”

Given the changing dynamics of firm legal work, there is some concern that the sweeping associates raise may be creating a salary bubble.

The number of law school graduates is down because enrollment plummeted after 2010, but enrollment has picked up. That means there will be a larger pool of recruits in about two years, which will likely depress salary levels.

“If the bubble bursts, this could be a lose-lose for associates and for firms because salaries have been driven so high,” said Kent Zimmermann, a law firm consultant with the Zeughauser Group.