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Just when you thought it was safe to look at your firm’s income statement, the associate recruiting wars are back. Shock waves from the early-year salary increase were just subsiding this fall when New York’s Sullivan & Cromwell released another jolt. In a late October memo from firm chairman H. Rodgin Cohen, Sullivan announced that it was jacking up year-end bonuses for first-year associates, from $10,000 last year to $35,000. Rival Cravath, Swaine & Moore upped the ante to $40,000, and by mid-November more than a dozen other top firms had followed suit (including Sullivan, which matched the higher figure). Still others were mulling it over, but most seem resigned to their fate. “When we jump on this bandwagon to insanity,” says one firm’s spokesman, “I’ll be sure to let you know.” What’s driving this isn’t clear. The early-year raises were simply triage: West Coast firms needed to stop losing talent to dot-coms. Accordingly, last December, Palo Alto, Calif.’s Gunderson Dettmer Stough Villeneuve Franklin & Hachigian announced that it was raising base salaries to $125,000, with a guaranteed $20,000 bonus. Within a month, most of the firms in The Am Law 100 had caved. Including year-end bonuses, starting pay at top firms now stands at $165,000 — an increase of about 60 percent over the last two years. But why the latest largesse? After all, the landscape that gave rise to the salary wars has been altered dramatically. As the dot-com market has cooled, associate defections have dwindled. Cravath presiding partner Robert Joffe says that his firm’s decision was based on three factors: associate workload, strong profits, and sustained competition for top associates. Cravath’s generous bonus structure will ripple up through the ranks, from $40,000 for first-years to $100,000 for seventh-year associates. Other firms said they would set upper-class bonuses later in the year. The latest round of New York raises throws the ball back in the California firms’ court. At press time none had matched the East Coast bonuses, and they seemed willing to hold off on any action until after their regular associate compensation meetings later this month and next. “We expected to hear drumbeats when the New York bonuses came out,” says one head of a Valley firm, “but, unlike last year, we’ve had very little prodding from associates — [which is] not to say we won’t.” New Yorkers like to think that the big bonuses put California in a bind. “Their investment funds are worth nothing, and their revenue is slowing down,” says one representative from a major New York firm. “Everyone is dying for California to go down.” To Tower Snow, Jr., chairman of San Francisco’s Brobeck, Phleger & Harrison, this is all just wishful thinking and sour grapes: “[New York firms] have been losing talent to the California tech firms. The bonuses are just another effort to stop it.” Snow explains why he thinks the raises won’t matter: “They’ve got a nine-year track; we’re closer to six. Less than 5 percent of their associates make partner. They typically don’t offer any venture capital or equity fund participation; our associates can realize sums vastly in excess of the bonuses they are offering.” A chairman of another Silicon Valley firm adds, “The West Coast view is that the firms that started this bonus wave have significant problems with associate satisfaction.” These sentiments might be dismissed as provincial boosterism, but data from The American Lawyer‘s midlevel associate surveylends them credence. For example, at Sullivan & Cromwell only five of 43 associates responding said they planned to be with the firm in five years. One Sullivanite claimed that associates were treated like “spoiled brats” who would “stop complaining when the recession hits.” Sullivan was hardly alone. The three other firms that led the year-end bonus parade — Cravath, Cahill Gordon & Reindel, and Cadwalader, Wickersham & Taft — scored even lower on the survey. Cravath’s Joffe dismisses any correlation: “It didn’t play at all into our decision.” Sullivan partner Benjamin Stapleton is similarly unimpressed: “I take those surveys with a grain of salt. The squeaky wheels are the only ones who respond.” While top New York and West Coast firms battle over associates, the escalating compensation conflict may cause collateral damage. “This is really going to put the squeeze on firms outside the top dozen or so,” says one New York partner whose firm is going to match the $40,000 bonus. “If you have profits per partner below $1 million, you’ll have to think long and hard about making this move.” A spokesman from another big firm concurs: “Everyone said Sullivan was committing suicide, but really it was homicide.” An executive working at one such sub-million-dollar outfit admits that though the firm matched the salary increases earlier this year, it was unsure about matching the year-end bonuses: “You wonder, at what point is this unsustainable? A lot of this stuff is done emotionally,” she said, “but at some point you have to be sane about it.” Maybe so, but not this year. As we went to press, her firm decided to pay up. Related Chart: Early Risers

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