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In the first weeks after a couple of local stalwarts raised their starting salaries for first-year associates to $160,000, Washington, D.C.’s largest firms are in a holding pattern, all nervously eyeing one another to see who will make the leap next. But they aren’t the only ones. The region’s smaller firms, those that have no intention of matching that amount, are also feeling some trepidation. “What the highest end of the market does — the AmLaw 50 firms — affects everyone,” says Douglas Hastings, the D.C.-based chairman of Epstein Becker & Green, referring to The American Lawyer‘s annual ranking of the top-grossing firms in the nation. While firms in California were tripping over each other to boost first-year salaries to $160,000 after the pay hike that began with New York firms earlier this year seeped into other major legal markets in early May, D.C. firms proved more cautious. After Hogan & Hartson and Akin Gump Strauss Hauer & Feld raised salaries to $160,000 two weeks ago, only a few firms, including Silicon Valley-based Cooley Godward Kronish and Boston’s Ropes & Gray, matched in Washington last week. Although more than 20 New York-based and national firms were already paying $160,000 in the nation’s capital, Hogan was the first D.C.-origin firm to do so. Hogan was also one of the first firms to boost first-year pay to $145,000 in the District during the first round of the salary wars that unfolded in January and February this year. Industry insiders say it’s only a matter of time until other D.C. stalwarts such as WilmerHale, Covington & Burling, and Arnold & Porter make the leap as well. But, as in the first round of the salary wars earlier this year, it can take a few weeks for the market to shake out. Many area firms declined to comment about their plans, beyond saying they “were monitoring the market” and “planned to stay competitive.” Staying competitive is also on the mind of Epstein Becker’s Hastings and his peers at smaller and midsize shops. “This latest round further challenges the bottom 150 [of the AmLaw 200] — and that includes us — to ponder where all this is going in an intelligent way,” Hastings says. “We are waiting and watching the market,” says Marvin Spivak, the managing partner of Alexandria, Va.-based Oblon, Spivak, McClelland, Maier & Neustadt, an intellectual property boutique with about 85 lawyers. “My guess, but I am not the sole decision-maker, is that we will probably follow suit later in the year.” The first-year associate salary is currently $135,000 at the firm, which typically looks at what the other IP boutique firms and general practice firms with large IP practices pay, he adds. Many midsize D.C.-area firms are unlikely to up starting salaries to the $160,000 level but are watching developments closely nonetheless, because the pay hike is expected to have reverberations throughout the market. “We can’t try to compete with these firms on salaries, but it has had some ripple effect,” says David Pordy, the managing shareholder of Shulman Rogers Gandal Pordy & Ecker, a Rockville, Md., firm with about 90 lawyers. The firm gave its associates raises ranging from $5,000 to $15,000 last year in the wake of the salary hikes in 2006, Pordy says. STAYING IN THE BALLPARK Firms can’t let the gap in pay get too wide. “They have lifestyle to dangle, but the pay has to be somewhere in the ballpark,” says Laurence Latourette, a D.C.-based legal recruiter. “Once the differential becomes too great, the migration begins.” Although recruits straight out of law school may not have much of a basis by which to judge their potential employers other than differences in starting salaries, both recruiters and area managing partners say that associates with a few years at a firm under their belt often have a different perspective. “Compensation is just one factor,” says Patrick Cavanaugh, the chief administrative officer of Philadelphia-based Blank Rome. “We offer associates the opportunities to work directly with partners, rather than banishing them to the library.” In March, the firm raised its first-year salary in Washington to $145,000, with a retroactive effect to Jan. 1. Cavanaugh says he doesn’t anticipate another pay hike. “We just made an adjustment that we think is appropriate for 2007.” Colin Beebe, a D.C.-based legal recruiter, says more seasoned associates are looking for training and firms where they can get responsibility early on in their careers.”Most people would trade away money for hours in a heartbeat,” Beebe says. “Occasionally, you’ll find an enlightened graduate who realizes that the salary is a deal with the devil,” says the managing partner of a D.C.-based boutique. But usually, it’s lateral associates who have the experience to be able to weigh factors such as training, the mentorship the firm provides, better chances of making partner, more livable hours, and firm culture. “We’ve always emphasized career development and the opportunity to do sophisticated work at an early level,” says Epstein Becker’s Hastings. In early February, after the first round of raises in associate salaries this year, management at Sterne, Kessler, Goldstein & Fox took note and convened their associates to discuss the changes in the marketplace. “They wanted flexibility and expressed concern that higher salaries would put more pressure on them,” says Michael Ray, the firm’s managing director. “They were concerned how it might change the firm.” Sterne, Kessler, which had been paying its first-years $135,000, came up with a tiered structure in which first-year associates who billed 1,900 hours are paid a $140,000 salary, associates at 1,950 hours get $147,500, and those who clock 2,000 billable hours receive $155,000. This allows associates who work hours comparable to the minimum billables at larger firms to be compensated like associates at those firms, but it doesn’t push associates to work longer hours in order to justify an across-the-board pay hike. Ray says the firm will continue to monitor the market in light of the most recent salary developments, but thinks the firm’s new pay structure provides the flexibility its associates are looking for. TRICKLE-DOWN EFFECT The higher salaries may have another benefit for midsize firms. Several managing partners say they’ve been seeing more high-quality r�sum�s from associates at large law firms looking for a change than they had in previous years. “We’ve attracted a lot of people from larger firms,” says Shulman Rogers’ Pordy, “who come here after three or four disillusioning years downtown.” And while smaller and midsize firms are selling lifestyle to their associates, they also see raises in associate salaries as a way to emphasize the value they provide to their clients. “The more they raise their salaries, the more we have the opportunity to attract midsize companies and Fortune 500 companies who are becoming more cost-conscious,” says Pordy. “People will be pricing themselves out of the market. We can put a partner on the job at $350 an hour.” In a recent survey by Pennsylvania- based legal consulting firm Altman Weil, a majority of general counsel, worried that they will end up footing the bill through rate increases, described the recent increases in associate salaries as “outrageous.” Industry observers predict that the latest salary hikes will lead to a further segmentation of the market. Law departments are stratifying their legal work, says Daniel DiLucchio, a consultant with Altman Weil. “Commodity work is so price-sensitive,” he says. “There’s more and more competition for that kind of work.” Companies will retain big-name firms as counsel for their “strategic” work, he explains, but they are likely to send more of their routine work to firms with lower rates.
Alexia Garamfalvi can be contacted at [email protected].

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