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Partners, check your associates’ billables closely for the past week. It’s possible they weren’t doing all that much work � between trading gossip in the hallways, refreshing blog pages, and wondering when their own firm was going to get in the game. Much to the chagrin of compensation committees everywhere, associate money madness has returned, and the mounting pressure on D.C.’s top-tier firms can be felt up and down Washington’s boulevards. “It’s pretty safe to say that everyone is talking about their salaries,” says a fifth- year associate in a D.C. office. “People want to know the firm is taking care of them.” As usual, the Nor’easter raining money (and envy) blew to town by way of New York City. Blame Simpson Thacher & Bartlett, which last week upped the stakes for associate base salaries in its New York and Washington offices. Simpson had raised its first-year associate salary to a whopping $160,000 � a $15,000 salvo. Almost immediately a flurry of other New York firms matched the increase for first-years and every other associate class for every office. And once again, New York left D.C.-based firms � and their lawyers � to re-evaluate their status in the global legal community. All that remained was for one D.C. firm to jump forward from the pack. And after an avalanche of leaked salary memos and unsubstantiated innuendo � Had Kirkland matched? What about Mayer Brown? � about who was raising salaries and who was waiting for someone else to move, Hogan & Hartson stepped forward at the end of the week, bumping pay for first-year associates in Washington to $145,000, up from $135,000. “We’re committed to being competitive in every market as a way of attracting the best associates,” says J. Warren Gorrell Jr., chairman of Hogan, which also raised New York salaries to $160,000. For Hogan, the move was critical, not only because it sees itself as a local leader, but also to show New York firms that it would stay close to the new benchmark. (Somewhere, John Roberts Jr., a Hogan alum now pulling in $212,000 as chief justice of the Supreme Court, is shaking his head.) It was also important for the status and perhaps the self-esteem of the top-shelf attorneys who chose to work down the seaboard in Washington rather than in Manhattan. To critics, who would argue it costs more to live in New York than the District, the retort was simple: This isn’t about the cost of living. It’s all about the cost of talent � and what that talent is worth on the open market. On the same day that Hogan raised its salaries, D.C.-based McKee Nelson followed, increasing associate pay � already at $145,000 � to $160,000. Co-founder and managing partner William Nelson says, “It is always our mission not to lose someone because of money.” Which is precisely the choice D.C.-based firms face: Cut into their profits and raise associate salaries, or risk giving New York- and California-based firms a significant edge in recruiting. A turning point? Of course, the talk among associates in the libraries of D.C.-based firms, in favorite drinking establishments, and on the message boards of legal blogs, has been a running combination of lust and indignation. Associate jealousy brews over the $25,000 salary gap that separates one associate from a law-school buddy who works across the street for a New York-based firm. Now the question is whether that jealously turns into something that impacts the marketplace. “I think this will be a turning point for many firms,” says Peter Zeughauser, founder of the Zeughauser Group. “Anybody who’s under $1.2 million in profits per partner is gong to have a lot more trouble swallowing this.” Along with Simpson, New York-based firms, including Paul, Weiss, Rifkind, Wharton & Garrison; Sullivan & Cromwell; Fried, Frank, Harris, Shriver & Jacobson; and Cadwalader, Wickersham & Taft, matched the increase. Then, on Jan. 24, Skadden, Arps, Slate, Meagher & Flom got into the action, becoming the first law firm with a major D.C. presence to up the ante for associate pay in Washington. The firm has 275 lawyers in the District, according to the 2006 Legal Times 150. The following day, Los Angeles-based O’Melveny & Myers said it would increase its first-year associate salaries to $145,000. In doing so, it threw down the gauntlet to every gun-shy D.C. managing partner. “D.C.-area firms will have a difficult time competing for talent if they don’t move off the $135,000 number,” says Brian Brooks, O’Melveny’s recruiting partner. “National firms have moved. And because we want to attract the best talent to D.C., we now look at the market as being set at $145,000.” As Yogi Berra might say, this appears to be d�j� vu all over again: For the second year in a row New York firms have set the pace on salary increases. Last January, D.C. firms WilmerHale, Dickstein Shapiro, and Hogan resisted until O’Melveny and California counterpart Gibson, Dunn & Crutcher bumped up pay. Wait and see “The question is going to be who will have trouble affording the top talent?” Zeughauser says. “But the firms who can afford it believe it’s healthy to have uniform pay for their associates.” For D.C. firms that want to be considered top-tier, the choice is clear: Raise or fold � and force your associates to live with the difference. “This may be a differentiation point for several firms who can’t raise their associate pay,” says Robert Ruyak, managing partner of Howrey. “We’re going to take everyone’s temperature and figure out what to do in the next couple weeks. I certainly don’t want our associates to feel slighted.” Karl Racine, managing partner of Venable’s Washington office, says his firm will not raise salaries from $135,000. “We expect to remain the same,” Racine says. Michael Nannes, chairman of Dickstein Shapiro, says his firm is weighing options. “We haven’t done anything yet. We are staying in close contact with the associates committee,” says Nannes, who has an executive committee meeting in February with associate salaries on the agenda. Williams & Connolly, long an outlier in associate pay, said they have remained at $150,000 for first-years. “We have not yet evaluated the change,” says Glenn Pfadenhauer, recruiting partner at Williams. The comfort zone Fifty years ago, bidding for legal talent was never a problem. Tournament of Lawyers, written by Marc Galanter and Thomas Palay, tells the story of the starting price for first-years as being fixed at an annual luncheon which was attended by the managing partners of New York’s most prominent firms. Think of the Five Families from The Godfather, but this time wearing Brooks Brothers and rep ties. Galanter and Palay write: “Salaries rose from $4,000 in 1953 to $7,500 in 1963. The era of the arranged �going rate’ and incremental raises ended abruptly in 1968 when the Cravath firm unilaterally raised salaries to $15,000 from a scheduled going rate of $10,500.” Flash-forward four decades � the competition is tenfold, and firms have effectively gone to the mattresses. “If anybody can point me to an industry that’s more competitive, then I’d like to see it,” says R. Hewitt Pate, head of Hunton & Williams’ global competition practice group. And so, a year after D.C.-based firms took care of their own by making the jump to $135,000, there is pressure to meet a new target. Of course, recruiters and consultants point out that money is not always the sole deciding factor for attracting talent. “How a firm recruits also depends on what else the firm is offering. If the associate is someone with a broader perspective, then it may not be as important,” says Lisa Smith, a consultant at Hildebrandt International. “But the reality is that we’re seeing more and more economic separation.” Nathan Carlile can be contacted at [email protected].

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