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The Class of 2000 is receiving the highest pay rate ever handed out to new associates. The majority of the 22 firms responding to Texas Lawyer‘s annual associate hiring survey are paying these recent graduates more than $100,000 — and that doesn’t include signing and productivity bonuses. For most of those firms, that’s more than a 40 percent increase over what they paid their 1999 first-year associates. The survey also revealed that hiring is up 6.5 percent over last year, an average increase of more than 1.5 attorneys per firm. Does that mean the top firms are lowering their hiring standards? “When you look at the number of associates that are being hired, the big firms are obviously hiring more than the top 10 percent of the graduating classes,” says Mike Baggett, chairman and CEO of Dallas-based Winstead, Sechrest & Minick and president of the Dallas Bar Association. “There is probably more leeway with grade cutoffs today than there has been in the past.” Years ago firms wanted to hire law students in the top 10 percent of their graduating class, says Kelly Noblin, assistant dean for career services at Southern Methodist University School of Law. Now “employers seem to be a lot more flexible with grades if [a candidate] has an undergraduate background that’s hot right now.” For example, she says, if a law school grad has a bachelor’s degree in computer science, engineering or accounting and work experience, they’re sure to get noticed, even if they’re not in the top 10 percent of their graduating class in law school. Still, demand is just as great or even greater for new associates than in the past, Noblin says, noting that SMU School of Law places 98 percent of its graduates within six to nine months after graduation. Noblin also notes that about 10 more employers are scouting out students this year compared to last year. And it’s not just large firms seeking first-years. Some of those hiring new associates are large firms based in big cities, but “we’re getting a few smaller firms interviewing on campus when they haven’t done that in years’ past,” Noblin says. SALARIES INCREASE Last year, it was predicted that the class of 1999 would not see salaries rise over the amounts received by 1998 graduates. But, the California firms, in competing with technology start-up companies, changed all that when they raised salaries to more than $100,000. That left Texas firms no choice but to follow. But, the Class of 2000 should be aware of some serious pitfalls ahead as a result of these salary hikes. “The increase in associate salaries is meeting resistance in the marketplace,” Baggett says. “General counsel are concerned about the higher salaries’ impact upon their lawyers and whether the salary costs will be passed through in the bills to the clients. The clients’ awareness and reaction to associate salaries is also having an impact. That reaction has caused us to review our cost to deliver a legal product. In the future, we will consider staff/contract lawyers, paralegals and nonlawyers with industry expertise to meet some of our clients’ needs. In the long run, this could decrease the market for associates at the higher compensation levels.” Houston-based Andrews & Kurth hired nine new associates in 2000, compared to 11 in 1999, says Howard Ayers, managing partner, and the declining number of new associates “had nothing to do with salaries.” “We remain just as committed to vertical hires as we always have,” Ayers says. “I wouldn’t read anything into that change in percentage.” “We use a two-prong approach to hiring lawyers, both lateral and vertical. In our case, [hiring] tends to vary from year to year,” Ayers says. For example, Andrews & Kurth hired 17 attorneys with experience in 2000, compared to 14 in 1999. He says all firms are facing an increase in demand for services. Therefore, “I don’t think cost [of salaries] is an issue in the face of this big of a demand.” However, experience is an issue. “We have to provide experienced lawyers who are ready to work today for clients,” Ayers says. That’s why the number of lateral hires is up slightly while the number of new associates hired is down slightly. “The healthiest way to grow a firm is to have a good relationship between hiring laterals and verticals,” Ayers says. Most importantly, though, hiring was up slightly at Andrews & Kurth in 2000, Ayers notes. The firm has no intention of slowing down with lateral or vertical hires. OTHER ISSUES CONSIDERED Another factor believed to have a long-term effect on the demand for “baby” attorneys is a lack of loyalty, which is a departure from the traditional longevity attitudes of the past, says Tracy Naftalis, a recruiting specialist and managing director of Dallas-based Counsel Source Inc. In the corporate world, migration among companies by employees has become an accepted practice. However, it’s a relatively new development for firms, and the “kids” may have gone overboard, Naftalis says. “Ideally, firms love the notion of getting great clerks in and home-growing them,” she says. “But the philosophy and spirit of having young associates go through the ranks of a firm has been soured by the economy because the baby attorneys have never known a down market. From the class of 1997 on, they know how easy it is to lateral. Because of the economy, it’s become a market of avarice.” Naftalis compares new associates to children. “They constantly get calls where they’re offered $10,000-$15,000 in sign-on bonuses and offers of substantially increased base pay,” she says. “They have childish entitlement. They want more and more.” More and more means expecting not to bill 2,800 hours a year, among other things. And they’re getting it, Naftalis says. “The firms have the need because the work is so plentiful now,” she says. “No matter what the section, the firms are buried.” But, the economy won’t hold forever, and new associates must be careful not to demand themselves out of the market, she says. Many firms learned caution after a hiring craze in the ’80s backfired on them when the real estate market crumbled in Texas in the latter part of that decade. “I think we hire with the expectation that people will stick around for the long-term,” says Craig Budner, summer hiring partner at Dallas-based Hughes & Luce. “We also hire with the recognition that an economy is never going to remain static. I think you can conclude that we carefully consider the possibility of a downturn in the economy when considering our hiring projections.” Another problem created by higher associate salaries is that it puts an emphasis on short-term production, Baggett says. “It creates a lot of pressure for associates to produce a more finished product and creates anxiety about whether they’re spending sufficient time to fully develop the legal analysis,” he says. “That could create an environment for mistakes.” High salaries also harm the mentoring relationship, he says. Clients won’t pay for training new associates. “Bills reflecting inter-office conferences among multiple lawyers are highly scrutinized by clients,” Baggett says. “If you can’t charge for that time, it creates pressure to reduce what would otherwise be supervision and training time. Rates at both ends [for associates and partners] are higher now. So, those costs are magnified to the clients. What some clients will do is they will say they don’t want young lawyers practicing on their files. They won’t pay for it.”

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