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The long freeze in first-year associate salaries is finally over. For the past six years, annual compensation for entry-level attorneys at most of the country’s top law firms has stayed at $125,000. But last fall a group of California firms announced that they would pay $135,000 to their first-years. Firms across the nation rushed to match that number, which seemed about to become the new standard top rate. Then in February, several New York firms decided to go even higher, to $145,000. And at press time the salary thaw had yet to end. Many firms were still debating whether to match the new top rate in their city. Other firms that in the past made a point of paying above $125,000 were agonizing over whether to exceed $145,000 now. Why are they doing it? Firms have to pay market rate to attract the best talent, according to Greg Nitzkowski, managing partner at Paul, Hastings, Janofsky & Walker. He adds, “The competition for talent is the single most important part of all of our futures.” The salary wars started last fall in California, when a string of midsize firms increased first-year associate salaries to $135,000. In December, Gibson, Dunn & Crutcher became the first national firm to start paying $135,000 to all first-years. Within a few weeks, other firms with California headquarters � such as O’Melveny & Myers; Wilson Sonsini Goodrich & Rosati; Latham & Watkins; and Paul, Hastings � had all matched Gibson, Dunn. According to Richard Gary, a former chairman of Thelen Reid & Priest and now a Bay Area consultant, a “herd mentality” kicked in among California firms. “No one wants to be a market leader in associate compensation,” Gary says. “But all of the firms that consider themselves to be competitive with the firms that went to 135 in the first place, they’ll all go to 135 for competitive reasons.” A ripple effect was soon felt in Washington, D.C., and Atlanta. IP boutiques Fish & Richardson and Finnegan, Henderson, Farabow, Garrett & Dunner led the move to $135,000 in D.C., which was later matched at Hogan & Hartson and Dickstein Shapiro Morin & Oshinsky. Around the first of the year several Atlanta firms also decided to increase their first-year salaries by $10,000, though their new top rate � $115,000 � continues to be lower than the rest of the country. In the current round of increases, New York firms initially held back to “see what the market [did],” says headhunter Dan Binstock, the managing director of the D.C. office of BCG Attorney Search. Even some firms that raised salaries in other cities stopped short for their associates in New York. Then in February, Sullivan & Cromwell became the first firm to go to $145,000, followed by Simpson Thacher & Bartlett. At press time more New York firms were expected to follow, with some discussing whether to go even higher. Prior to last fall’s California salary quake, several New York � area firms had made a point of paying their first-years more than $125,000, including Boies, Schiller & Flexner (the national leader at $144,000). The recent pay hikes have been driven by a growing economy, which was also behind the last round of first-year salary raises in 1999 � 2000. During the dot-com boom, venture capitalists began luring the graduates of top law schools from big firms by offering more creative and lucrative career opportunities. That had firms running scared. In 1999 Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, based in Menlo Park, California, raised its first-year associate pay by more than $20,000, to $125,000. After that, a bidding war broke out across the country, and salaries once unheard-of became the national norm. Of course, even the greediest associate soon learns that record-breaking salaries can be a “double-edged sword,” according to headhunter Binstock. That’s because when a firm offers a $10,000 raise to 100 associates, it means $1 million in additional overhead. And then partners are faced with three options: take it out of their own profits, increase billing rates, or up billable hours requirements. During the dot-com boom, many trend-setting firms chose the last option, strictly enforcing � or even increasing � billable hours requirements. According to Binstock, by 2000 some lawyers were saying that they “would rather be paid a 1999 salary without the extra pressure.” This time around, first-years aren’t looking a gift horse in the mouth. So far, at least, there have been no reports of complaints from associates. Clients, however, have yet to weigh in.

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