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.
Should Your Firm Match Milbank?
A cold-hearted look at market data and dynamics suggests firms would do well to approach the incipient round of salary increases extremely thoughtfully
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.
Whatever the reasons for so broad a swathe of firms treating their associates as a homogenous commodity, firms should try to find a means to end it. They have two obvious levers: adopt the increases in only some offices, and demure on the increase entirely. The precedent for the former is well established. For the 2016 increases, the fault line was Atlanta, the 10th largest metropolitan area by GDP. The three firms with the largest number of lawyers in that city—King & Spalding, Alston & Bird, and Troutman Sanders—did not go to $180,000 there although they did in other cities. We’ve already seen demarcation by metropolitan area in the nascent round of increases: Proskauer, who announced an increase to $190,000 within 24 hours of Milbank’s move, did not match Milbank in Florida, Louisiana, or New Jersey. They were not assailed for this by Above the Law, the arbiter for all that is just in the mind of the Big Law associate; indeed, it went entirely unremarked upon.
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