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Faced with mounting market pressure from East Coast and West Coast firms, large Texas firms gave their associates mind-boggling raises in 2000. It was a free-for-all of riches — some say madness — which may well have occurred without Howard T. Ayers, managing partner of Houston’s Andrews & Kurth. But sometimes it takes a little gumption to take the first step. So when Ayers made an announcement on Feb. 23 raising the salary scale for his firm’s associates, that move raised the stakes throughout the Texas market. The impact of the 235-lawyer firm’s decision to boost the salaries of first-year lawyers to $104,000 from $86,000 did more than simply prompt Andrews & Kurth’s big-firm competitors to up the ante for their associates. It led to a frenzy of escalating raises that lined the pockets of associates and prompted great interest in the ramblings, rantings and information on a Web-based message board known as Greedy Texas Associates. But it also started what may ultimately become a market shakeout. Ayers’ announcement may have launched a stratification among firms, distinguishing the haves from the have-nots and putting stress on the bottom lines of every firm. It is, clearly, the biggest firm story of 2000. Ayers could have waited for another managing partner of another large Texas firm to announce big raises. Vinson & Elkins, in fact, decided to make an adjustment in December, raising base salaries by 10 percent, inflating the 2000 base salary for first-year lawyers in Texas to $86,000 from $78,000. Andrews & Kurth, like many large Texas firms, moved to that new V&E rate. But Ayers was the first to make an announcement in the wake of unbelievably large raises given by a Silicon Valley firm that has an office in Austin. It was a whole new ballgame in Texas and across the country after Gunderson Dettmer Stough Villeneuve Franklin & Hachigian hiked starting pay for its first-year lawyers to a guaranteed $145,000 as of Jan. 1. Ayers says he and others at Andrews & Kurth were simply tired of waiting for some other firm to set a Texas market rate. “In fact, we were struck by the fact that our guess to where the market would settle wasn’t very far off,” Ayers says. “As much as I would like to say we led the market, it’s more accurate to say we anticipated the market.” “We never looked back. It remains the right decision,” says Ayers, a business transactions lawyer who has led the firm since 1997. Shortly after Ayers’ announcement, V&E raised the bar even more by instituting a $115,000 salary package for its first-year lawyers. Andrews & Kurth later made adjustments to meet the new market rate and a slew of other Texas firms, large and small, either moved to the new BigTex rate, or gave raises of some sort. A GOOD YEAR Ayers says Andrews & Kurth, which had profits per partner of $581,000 in 1999, was well positioned in March to absorb the seven-figure hit to its bottom line, and despite the loss of 10 corporate and securities partners to rival V&E during the summer, he says the firm will have another good year in 2000. “What we set out to prove is we are not afraid,” Ayers says. But the long-term impact of the salary hikes on the Texas legal market is still unknown. The effects of the increased overhead won’t become apparent until after firms close their books on 2000 and financials are reported in June 2001 in Texas Lawyer‘s annual report on firm finance. Raises for 2001 are an open question. While a number of large New York firms have announced they are giving first-year associates $40,000 year-end bonuses, boosting starting packages to $165,000, Texas firms haven’t jumped on that bandwagon. Ayers says Andrews & Kurth will take a while to study the market, although the firm has assured its associates they will be paid at the top of the market in Texas. “We probably are going to take more time this year, and my guess is most of the other firms will, to see a clearer picture,” he says. “It’s probably on the table [for] the other side of Jan. 1,” says David Laney, chairman of Dallas’ Jenkens & Gilchrist. Depending on what the Silicon Valley firms do, some sort of raises may be inevitable. “If New York does it, you know Chicago will have to do it and you know L.A. has to do it. Then Texas will have to come along,” says Houston firm consultant William Cobb. At the same time, many Texas firms will be deciding whether to follow Baker Botts and Andrews & Kurth and shorten their partnership tracks. While partnership tracks at some large Texas firms have grown to as long as 10 years, the two large Houston-based firms promoted some seven-year associates to partner, effective Jan. 1, 2001. Notes Ayers, “I’m not sure everyone will rush to do that, but unless the economic climate changes and mitigates against all of this, those kind of things are very important to do.”

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