Texas firms stayed out of the water initially, avoiding the rush of associate pay increases that began in December 2005 on the West Coast. In February, New York firms began diving in, with the announcement by Sullivan & Cromwell that it was raising first-year associate pay to $145,000.

By March, large Texas firms had jumped in, too. They began announcing associate pay scales that, for the most part, increased the first-year associate salary from $115,000 to $140,000 -- a whopping 21.7 percent leap.

This year's Texas Lawyer Salary and Billing Survey reveals that firms of all sizes are reporting healthy increases in 2006 salaries. This year, salaries increased for lawyers, nonlawyer administrators and nonlawyer support staff. Hourly billing rates also climbed, except at smaller firms, while expected billable hours are about the same as those reported by the same firms in 2005.

Average salary increases for lawyers are 4.7 percent for first-year associates, 9.3 percent for fourth-year associates and 5.1 percent for seventh-year associates. For firms with more than 100 lawyers, first-year associate salaries are jumping by 16.4 percent. The deadline for firms to complete the Salary and Billing Survey was March 27, which means some respondents forecast 2006 salaries and bonuses prior to deciding whether to increase associate compensation. Two of the 40 firms responding to the survey say they are still reviewing associate salaries due to recent announcements by other Texas firms to hike associate pay as much as 20 percent.

It has been at least five years since law firms offered dramatic increases in base pay for associates, says Carrie Printz, of New York-based recruiting firm Legal Search Consultants: "Now, as the economy improves, there's more pressure [on the firms] from attorneys, who are working longer hours, to give salary increases."

New York-based Weil, Gotshal & Manges -- which has Texas offices in Austin, Dallas and Houston -- is one of the large firms increasing associate pay in 2006. "Sullivan & Cromwell led the pack in February, and then all the New York firms, including Weil, responded," says Mary R. Korby of Dallas, chairwoman of Weil Gotshal's associate compensation committee.

Weil Gotshal, which has 1,224 lawyers firmwide and 136 lawyers in Texas, announced the pay increases on March 8, retroactive to March 1, Korby says. First-year associate base pay is now $145,000, fourth-year associate base pay is $190,000 and eighth-year associates are paid $255,000. The firm also has a merit bonus system that is not based on billable hours, she says. In 2005 the associate bonuses ranged from $35,000 to $80,000, she says.

For merit bonuses, the firm rewards quality work and leadership skills. "The things we focus on are "do you do pro bono, are you nice to the secretaries, are you active in the community, are you well-rounded and show[ing] good scholarship?' " Korby says.

The increasing associate salaries at larger firms in Texas will eventually impact Austin-based McGinnis, Lochridge & Kilgore, which has 82 lawyers, says managing partner Patton G. Lochridge. "We look at salaries at the first of the year and generally try to stay competitive," Lochridge says. "But we never try to match the firms with locations throughout the country."

Meanwhile, McGinnis Lochridge will continue to pursue its market position advantage of being a regional firm that offers clients lower billing rates due to lower salary and overhead costs, he says. Lochridge says the firm has no immediate plans to raise associate salaries and declines to share information about the firm's billing rates or associate salaries. "I would never say that legal service by a firm our size is inexpensive, but we can compete pricewise with the larger firms -- that's never a problem," he says.

According to survey respondents, billing rate increases for 2006 range from 8.4 percent for senior paralegals to a low of 2.8 percent for equity partners, compared with the rates charged by the same firms in 2005. Rates for nonequity partners are up 4.1 percent, seventh-year associates are up 3.4 percent, fourth-year associates are increasing 6.1 percent and first-year associate rates are flat.

Rob Rowland, with recruiting firm Associated Counsel of America in Houston, predicts further billing rate increases this year as the rate gap narrows between New York firms and Dallas and Houston firms. The billing rate and salary increases are driven by the fact that so many of the firms are competing in the same marketplace, he says. "Houston firms are duking it out with New York and Chicago and San Francisco firms, and they're all fighting for the same clients," Rowland says. "The firms are saying to themselves that they are serving the same clients as their New York competitors and so should be able to charge the same rates," he says.

SHOPPING AROUND

When it comes to comparing associate pay plans, new lawyers have become sophisticated, Rowland says. "You used to have to educate them about the differences between firms, about profits per partner and revenues per lawyer," he says. "Now they know all that stuff, and so they are very, very selective."

Rowland says he is not surprised that the expected billable hours reported by the Texas firms are the same as last year. Lawyers "are all working a lawyer-and-a-half's load," he says. "There is only so much anybody can do."

At Dallas-based Thompson & Knight, the minimum billable-hour requirement of 1,950 hours for associates remains the same this year although salaries are increasing, says Peter J. Riley, managing partner of the 420-lawyer firm. Effective April 1, first-year associate salaries are $135,000 plus a $5,000 guaranteed bonus and senior associates earn $190,000, he says.

When including the cost of recruiting and training, Riley estimates it can take three to four years to break even on a firm's investment in an associate. He says he was surprised at how quickly the Texas firms raced to meet the salary increases that East Coast firms made in early February. "I thought it would happen next year," he says. As soon as Texas firms began to announce increases, Thompson & Knight, with 348 lawyers in Texas, notified its associates that the firm was reviewing the compensation system, Riley says.

"I expect there will be a war for talent forever," Riley says. "The question is: How do you manage this talent, so that you get the most out of them and retain them?"

This year, Thompson & Knight also revised its two-tier partnership track. Formerly, associates were eligible for partner consideration after six-and-a-half years of experience and equity partnership after nine-and-a-half years. Now it will be eight-and-a-half years after law school graduation before an associate is eligible for partnership consideration, Riley says.

"It's just getting harder for people to develop marketing skills in six-and-a-half years," he says. "We had people making partner and struggling. That is not what you want." The classes scheduled for partnership review in 2006 and 2007 are grandfathered and eligible for partnership consideration after six-and-a-half years, he adds.

At Austin-based litigation firm Scott, Douglass & McConnico, associates are eligible for partnership after just five years of experience, says managing partner Ray Langenberg. The shorter partnership track at the 42-lawyer firm and quick access to trial experience are two characteristics that keep the firm attractive to talented associates, he says.

"We tell new lawyers that if you want to be a litigator, come to work here, because it is all we do," Langenberg says. He declines to reveal the firm's associate pay scale but says the firm will eventually review associate salaries and set the scale at a level where compensation is not a negative factor in an associate's decision.

But with faster access to trial experience and partnership, Langenberg says the firm has never lost a lawyer due to its starting salary. "A starting lawyer is shortsighted, if all he is looking at is beginning salary," Langenberg says.

Related charts:
Hourly Billing Rates
Average Hours Billed Per Week
Timekeepers' Salaries
Administrative Services Salaries
Support Staff Salaries
Legal Secretaries' Salaries