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The war began with a simple declaration delivered to Gunderson Dettmer Stough Villeneuve Franklin & Hachigian associates at a meeting just before Christmas. Gunderson Dettmer managers told the troops massed at its Menlo Park, Calif., office that the firm was raising associate salaries and bonuses across the board — with first-years earning $120,000 in base pay and a guaranteed $25,000 bonus. With the announcement, the firm’s leadership knew it was hurling a $145,000 grenade at competing firms and dot-coms that had been luring away lawyers. What it didn’t see, however, was how the increases would set off a national wave of associate salary hikes that would extend to Los Angeles, New York and beyond. “To a certain extent, I think we did this not unmindful of how it would have an impact on firms that were competing,” says Gunderson Dettmer founding partner Robert Gunderson Jr. “But I don’t think any of us could fairly claim we saw the international consequences of what we did.” Nine months after Gunderson Dettmer’s decision, the legal market is still reverberating from the pounding cannons of the salary wars. In the San Francisco Bay Area, nearly every major firm matched — or came close to matching — Gunderson Dettmer’s salaries. Most bonus structures were tweaked to reward hourly performance, and some firms created investment pools or allowed associates a share of the firm’s profits. The salary war spread as Los Angeles firms tried to contain costs — acting slowly and somewhat reluctantly to match Silicon Valley rates. And New York firms, which have long set the national standard for salaries, were forced for the first time to react to another region’s financial model. Bay Area recruiters were flooded with resum�s from the South and Midwest, and the war was covered by the national press, including The New York Times and Wall Street Journal. The final result? In purely financial terms, first-years saw their base pay increase an average of 23 percent at most major firms. Mid-level associate pay jumped an even heftier 32 percent to a Bay Area norm of $165,000. And many firms report they’ve been able to slow the flood of associates to stock option-rich, in-house positions. Of course, they’ve been helped on that score by the Nasdaq’s turbulence and the relative financial instability of many dot-coms. “There are still a lot of opportunities in the Silicon Valley, but I think there’s a different risk analysis,” says Donna Petkanics, managing director of operations at Palo Alto, Calif.-based Wilson Sonsini Goodrich & Rosati. “My sense is the market has stabilized, and there’s less of a frenzy from the dot-coms.” But the changes have also exacted a toll. Firms have cemented billable hour requirements — with many holding out financial carrots for associates to bill 2,100 to 2,400 hours. That, in turn, means an increased emphasis on cash over culture. Pro bono has suffered, with several firms ratcheting back on the number of pro bono hours that associates can claim as part of their billables. “There is no doubt in my mind that there is more pressure to bill,” said an associate at San Francisco-based McCutchen, Doyle, Brown & Enersen. “I don’t know exactly how it’s going to shake out, but people here feel it’s definitely more a bottom-line firm.” SECOND GREAT RAISE OF ’00? Of course, for many associates and firm managers, talk of the early 2000 salary war is already ancient history. The slogan on Infirmation.com’s Greedy Associates — the seminal Internet bulletin board where associates sound off on money matters — is “Coming Soon to the Fertile Womb — the 2nd Great Raise of Aught Aught.” The question among firm managers and associates alike is what happens when the next round of increases hits? Will firms top themselves? Scale back? Do nothing? Gunderson, guru of the “First Great Raise of Aught Aught,” said he sees another hike coming — although it may not be as hefty. “I wouldn’t expect we’d increase starting salaries by another 50 percent,” he said. Nevertheless, he’s keeping his options open. “We’re intent on maintaining a competitive standing,” Gunderson says, “and it’s not relative to other law firms — but to other opportunities” such as dot-com jobs. Gunderson acknowledges “some of the pressure has come off” the firm because “more rationality has come back to the [stock] market” and the bloom is off “the dot-com and e-tailing craze.” Still, he says tech-centric firms must continue to keep their associates from feeling like they’ve missed the boat: “We want to make sure that for the people who say ‘I really like this,’ that they can build a career doing what we do and not feel like, ‘Gee, I was an idiot. I should have gone in-house.’ ” And it’s not clear whether other firms will fire back if another salary skirmish begins. “It wouldn’t shock me if there was another salary increase,” says Marina Park, firmwide managing partner at San Francisco-based Pillsbury Madison & Sutro. But Park wonders if firms will match another sharp increase. “If it’s a small leap, they will follow,” she says. Another big increase would likely trigger the same kind of struggles that occurred earlier this year. Even local managers suffering attorney attrition nightmares broke into a cold sweat over Gunderson’s initial pay hike. For three weeks after Gunderson’s December increase, Bay Area firms chewed over potential pay hikes. Many argued that they were waiting for a large, diversified firm to raise salaries. Gunderson Dettmer, a corporate boutique with fewer than 70 associates, was too small to serve as a model for the rest of the region. And the costs — a $10 million-plus hit in some circumstances — gave partners pause. Then came Cooley Godward. With 400 associates, Cooley was the first large firm to respond to Gunderson. Base pay for first-years jumped to $125,000, $5,000 more than the $120,000 base available at Gunderson. But Cooley set a trend by opting not to extend a guaranteed bonus to first-years on top of the base salary. Within 24 hours, Wilson Sonsini and San Diego-based Gray Cary Ware & Freidenrich had followed suit. Wilson was particularly adamant on bonuses. “We don’t believe in guaranteeing bonuses,” said Alan Austin, Wilson’s then-managing partner, in a January interview. “We think Gunderson went way too far on the starting salary to do a guaranteed $145,000.” But bonuses weren’t the only way firms could increase compensation. For the first time, Pillsbury began offering sixth-year associates points in the firm. The move gave them a stake, albeit relatively small, in the firm’s profits. “We thought it was important for people to understand the economics of the law firm,” said Pillsbury’s Park. Venture fund investment is increasingly popular, too — especially among technology-heavy firms. “Instead of raising salaries, it’s much better to invite them into the fund. You’re not stuck with giving them high salaries,” says recruiter Robert Major Jr. of Major, Hagen & Africa. THE BOTTOM LINE Of course, firms have to pay for all of the new salaries and perks, and that has meant tougher minimum billable requirements. Where 1,850 hours was once the minimum requirement, now many firm managers are expecting 1,950 hours or more. Bonuses tied to performance levels are the norm at most large firms. At Brobeck, for example, associates who reach the 2,400-hour level can earn a bonus of up to $30,000. The bonus begins at $5,000 for 2,000 hours, with an additional $7,500 thrown in at 2,250 hours, and $17,500 more at the 2,400 mark. For a number of associates — especially those with a tech-related practice — the progressive bonus structure is only fair. It rewards those who do the most work. But the renewed emphasis on the bottom line means less time for things like pro bono work. Although some firms allow pro bono hours to count toward minimum billables, the number often is just 2 percent of the total requirement. Lifestyle is also an issue. As salaries have climbed, so too have complaints that increased hours are making it difficult to maintain a collegial working environment. “I’m much more reluctant to do firm extras,” says one Orrick associate of summer associate gatherings and other firm events. “You know what? You’re squeezing enough hours out of me.” A few firms — Oakland’s Crosby, Heafey, Roach & May to name just one — have responded to the issue by creating a two-tiered system that allows associates to opt out of the hours-based bonus track for a lower billable requirement and a smaller base salary. Crosby’s system, for example, allows first-years to work 1,850 hours for a base of $95,000. Such variations on Silicon Valley’s salary model are likely to expand as firms continue to adapt to the changing competitive environment in the Bay Area, firm managers say. But one thing is clear from both associates and partners. The salary wars were an inevitability. The market demanded it; the talent demanded it; and the firms had the financial ability to act. At Gunderson Dettmer, the battle began much earlier than its December salary announcement. For months, the firm had been discussing how it could keep associates from jumping ship. Without a continuing supply of talent, the firm would be unable to survive, much less thrive. Without the salary increases, Robert Gunderson says his firm was going to be hard-pressed to convince talented associates that a firm was a better choice than an in-house job. “The question was: could law firms compete for first-rate talent and not only get that talent but keep it? And was this an attractive career path?” asks Gunderson, adding, “We thought it was.” Recorder staff writers Michael Joe and Renee Deger contributed to this story.

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