Home

Instant Insights / Are Big Law Associate Raises a Smart Move or a Shot in the Foot?

We haven’t heard the word “lemmings” used to describe reactions from law firms after Milbank, Tweed, Hadley & McCloy announced first-year associate to salary hikes to $190,000. Sure, a handful of firms have matched, but the historical rush by Big Law to keep pace has not played out—at least not yet. In this Instant Insights, we explore why the game of follow-the-leader has fewer participants this time around, and we take the pulse of reactions to the raises from clients, competitors and experts.

X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
No one wants to take a 6 percent hit to 50 percent of their cost structure in the 107th month of an economic expansion that feels increasingly precarious. At the same time, no one wants hordes of disgruntled and distracted associates, embittered by perceived iniquities, wandering the hallways. So, when Big Law’s executive committees sit down on Monday morning, which firms should match Milbank’s move to a $190,000 starting salary? For those that do, how should they do it?

Deciding on a salary increase

Let’s set the context with some data. Figure 1 shows the starting salaries (before the unfolding increases) of the Am Law 200 ordered by profit per equity partner (PPP). The firms are grouped in three buckets: those with a $180,000 starting salary across all, some, or no offices; (the starting salary plotted is the highest across all a firm’s offices). Also shown is firm PPP (the curve). The figure shows the top 120 firms are paying the same for their associates across a six-fold difference in firm PPP. This is what you see for a commodity raw material in a manufacturing industry, where the commodity is homogenous and interchangeable across all buyers. The data would imply that the 14,000 associates at the 20 most profitable firms provide the same service as the 45,000 associates at the next 100 most profitable firms. I’m skeptical. I’m sure the associates at these firms are good people and fine lawyers; I’m equally confident they’re not fungible with the associates at Wachtell.

What’s going on? A small piece of it is the Harvard junior faculty phenomenon. Harvard is infamous for under-paying its junior faculty whom it has no problem attracting given the institution’s status. The same discount applies in consulting where starting salaries at the elite firms (The Boston Consulting Group, McKinsey) are below those at the legacy accounting firms. This would explain why the top 10 or so firms can underpay relative to the selectivity of their associates; it doesn’t explain why firms ranked 10 to 120 should pay the same salary rate. Possible explanations for this include misinformation and vanity. The misinformation is that firms are constantly being told the market is bifurcating into haves and have-nots; paying below the top rate is acknowledging you’re in the latter, downward spiraling, tier. As Nick Bruch of ALM Intelligence and I have demonstrated, no such separation is happening; the bifurcation notion is useful to consultants and headhunters and thus is proving hard to kill. The vanity explanation is that partners, even at firms ranked 60 to 120 by PPP, want to feel they’re at elite firms. Their self-esteem is bolstered by paying their associates the same as elite Wall Street firms do. It’s a high-priced route to healthy self-worth; alternative routes (mindfulness, exercise, a Rolex?) might be better value. Amateur psychoanalysis aside, the real culprit may be creeping “keeping-up-with-the-Joneses”: the top firm pays the increase; the second-to-top feels obliged to follow the top firm; the third firm feels obliged to follow the second, and on it goes. Each individual decision is rational; the cumulative result is insane.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

Legal Research and Law Library ManagementBook

This revised edition of Legal Research and Law Library Management retains the best elements of the previous edition while covering the latest in law library management.

Get More Information
 

You Can't Manage It If You Don't Measure It

How are you illustrating differentiation to clients and potential lateral targets? How are you measuring performance against peers? Use Legal Compass to benchmark a firm against its competitors, unearthing unique insights about performance, partner retention, market penetration and more. Click to log in, or begin your free trial.

Get More Information
 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.