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Nine months ago, Peter Thompson, like so many D.C. lawyers, had never heard of Palo Alto, Calif.’s Gunderson Dettmer Stough Villeneuve Franklin & Hachigian. Today, Gunderson Dettmer is all too familiar as the California firm that started the associate salary wars, forcing large firms around the country to follow suit or risk falling behind in the competition for top young legal talent. But the largest law firms were not the only ones affected by the round of unexpected, unbudgeted salary hikes that Gunderson Dettmer set in motion last December, according to Thompson, managing partner of D.C.’s 90-lawyer Ross, Dixon & Bell. Less than a year later, most everyone in Washington has had to dig deeper into firm coffers to keep pace with the market. But while D.C.’s largest firms moved domino-style, falling in line with new starting salaries of $125,000, there has been no uniform response at D.C.’s smaller shops, like Ross Dixon. Some firms have met top salaries, while others — reluctant to increase client billing rates or associate work expectations — have fallen behind. Still other midsize firms are only now taking a look at the new market realities and struggling to figure out where they fit in. At Ross Dixon, says Thompson, the firm determined it could no longer afford to match the area’s biggest firms dollar for dollar. “For most of the firm’s history we have taken pride in the fact that we were able to offer salaries competitive with almost any D.C. firm,” he says. “When these most recent raises hit, we took a hard look at it and concluded we could not responsibly match the top of the market this time around.” Actually, Ross Dixon — a litigation firm with offices in Washington; Chicago; San Diego; and Irvine, Calif. — came darn close to meeting the top of the market, at least for entry-level associates. Under its new salary scheme implemented in May, the firm offers potential compensation of $115,000 to first-years billing at least 1,900 hours. And associates billing more than 1,900 hours are eligible for productivity bonuses keyed to their hourly rate. But salaries for more senior associates are somewhat compressed, with seventh-years earning approximately $140,000, not including bonuses. At D.C.’s five largest firms, seventh-year associates earn base salaries ranging from $170,000 to $200,000. “For us, a knee-jerk ‘let’s meet the market reaction’ would require us to dramatically increase hours that we want our associates to work and change the very thing that has set us apart all along,” Thompson explains. “We felt we had to do something a little different to remain competitive for top-notch people without selling our souls in the process.” Even so, Ross Dixon increased its expectation for billable hours from 1,850 hours to 1,900 hours in conjunction with the raises. So far, not a single associate has left for financial reasons, Thompson says. But, of course, for firms like Ross Dixon, money has never been the biggest draw for young lawyers. Instead, associates tend to select midsize firms for a specific practice specialty, the opportunity to work closely with partners, a less corporate culture, or better odds of making partner. And they are often willing to sacrifice $15,000 or $20,000 for those intangible benefits. “This firm has always attracted people for whom there are other things that are more important than money,” says Scott Nelson, chairman of the hiring committee at D.C.’s Miller, Cassidy, Larroca & Lewin. “At the same time, we’ve never wanted to ask people to sacrifice too much.” L. Andrew Tollin at D.C.’s Wilkinson Barker Knauer agrees. The 40-lawyer communications firm raised associate salaries in June, but stopped well short of big-firm rates. First-year pay was bumped from around $80,000 to more than $90,000, Tollin says. “We’re selling an environment. We’re selling very close supervision and working relationships. We’re selling immediate client contact,” Tollin says. “And most of all, we’re selling an environment that’s livable, where people know one another and socialize.” He adds that even the limited increases have forced his firm to re-evaluate its entire compensation philosophy, moving away from a relatively lock-step pay scale to a more merit-based system, giving the firm flexibility to set individualized compensation. THE NEW MATH Indeed, for many small to midsize firms — particularly those with unique practice focuses — calculating appropriate compensation is more complex than simply following the firm next door. “It’s something we’re always struggling with, because we’re not like most other firms,” says Andrew Friedman, partner in charge of recruiting at D.C.’s Cohen, Milstein, Hausfeld & Toll, a contingency firm with about 35 attorneys specializing in class actions and stock fraud suits. “We made a decision a long time ago that we couldn’t try to match the big firms. It would be a blueprint for disaster,” Friedman adds. But with the difference widening between paychecks at his firm and others in town, Friedman concedes that his firm has felt the impact in recruiting. “We don’t see people leaving, but I think it diminishes the pool of people that we see,” he says. “With that kind of money on the table, I can’t really blame them.” Salaries for Cohen Milstein’s dozen associates are set individually and largely kept secret. Many firm associates don’t know what their colleagues make or what they themselves can expect to earn next year. But according to associates who shared their salaries on the condition that their names not be revealed, first-years start at approximately $85,000, and a midlevel associate might earn around $100,000. In flush years, partners dole out year-end bonuses, determined as a percentage of base salary. Cohen Milstein, which implemented significant pay increases in 1998, has not made an adjustment in response to the moves that many D.C. firms made this spring, Friedman says. Associates say they are reluctant to push the issue. “Naturally, there’s always a little bit of jealousy when you see what your friends at other firms are making, but people understand there are trade-offs,” says one firm associate. “You pretty much come here with your eyes open.” At D.C.’s Groom Law Group, an approximately 40-lawyer employee benefits boutique, partners attempt to pair big-firm pay with small-firm atmosphere and opportunity. Starting associate pay was upped in spring from $95,000 to $110,000 for first-years. Senior associates earn a base salary of $155,000. In addition, there is a $15,000 bonus for billing more than 2,000 hours and a $30,000 bonus for surpassing 2,200. The minimum billable hour expectation is a manageable 1,850 for first-years and 1,900 for more senior associates. “I have a basic belief that the way you should pay is on the market value of your labor,” says managing partner Gary Ford. “The market was saying that associates were worth more. I don’t resent it or condemn it.” In a typical year, the firm hires just two recent law school graduates, Ford says, noting, “Usually our recruits have an offer from a Covington or a McDermott. We are in exactly the same labor pool that those firms are in.” Groom Law associate Michael Prame, 32, says the firm’s immediate response to the market shift was impressive. “It was not a situation where they said, we’ll address this five months down the road. They fixed the situation right away.” For those smaller firms that have not yet increased salaries, the pressure is only likely to intensify as the fall recruiting season gets under way. At D.C.’s 55-lawyer Jackson & Campbell, associate compensation is under active consideration, with a decision expected in a matter of weeks, says executive committee member Timothy Dingilian. “The market has made a quantum leap,” he says. “We’ve got to go back to basics and see where we can come in.” Currently, the firm pays first-year associates $75,000, plus quarterly bonuses based on billable hours. Before campus recruiting, the firm intends to announce new starting salaries and will most likely raise salaries across the board, Dingilian says. But as a full-service firm with a regional client base unlikely to tolerate increased billing rates, Jackson & Campbell is in just the category that some law firm consultants say will be most severely affected by the market shift. “The 30- to 70-lawyer general practice firm doesn’t have the economic wherewithal to match the market,” says Texas-based consultant Howard Mudrick, a former executive director of a midsize D.C. firm. “They would never be able to recoup the investment because, by and large, the clients would be unable and unwilling to afford the rates the firm would have to charge to stay afloat.” The consequences, Mudrick adds, can be severe. “If you’re not at least close to in the game, you’re vulnerable to being cherry-picked by firms that have the economic wherewithal to pay higher salaries.”

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