Green With Envy?

Most managing partners at large Philadelphia firms say they will not follow the pattern of two years ago and increase first-year associate salaries in response to Dechert’s recent decision to raise the bar to $125,000. But if one or two of their peer firms match Dechert or come close, managers indicated, they might have a change of heart. Just as it did in 2000, Dechert has made a bold move in raising first-year salaries, this time by $20,000 — a decision that was announced by the firm last week when most managing partners were sunning themselves. The Dechert increase will no doubt have some sort of ripple effect on other Philadelphia firms. The question is which firms will offer responses and what will those responses be. Dechert raised the bar two years ago, becoming the first Philadelphia firm to bump starting attorney salaries from the then-standard $75,000 to $90,000 and eventually to $105,000. Every other large firm in Philadelphia followed suit, but legal market observers are not so sure that will happen this time around. During the previous round of salary increases, firms introduced increases in a thriving economic climate. But the latest increase, which will go into effect Jan. 1 for associates in Dechert’s Philadelphia and Princeton, N.J., offices, comes at a time when most local firms are grappling with the economic downturn and some have been forced to lay off associates and staff. Though Morgan, Lewis & Bockius is the only other Philadelphia-based firm competing on Dechert’s financial level, some industry insiders believe other firms will get involved in the fray — if not matching Dechert, at least moving salaries to a level that would be more competitive with the firm. But other consultants and lawyers believe the status of the Philadelphia market does not warrant each large Center City firm following in Dechert’s footsteps. “Because Dechert has such a high benchmark for associates, I think they felt they had to set themselves apart,” one legal recruiter said. “I don’t know if there’s a need for other firms to do this. In fact, I think it would be foolish for every other [large] firm to do that. “There are some of those firms that only look at the top 5 percent of candidates, but certainly not all of them. Dechert has always been the most picky. And this should help them get the best entry-levels and set them apart in the lateral market. But the last time all the other firms [matched Dechert's 2000 salary increases], it made dealing with the economic downturn much harder.” When Morgan Lewis’ Philadelphia office managing partner, Howard Meyers, was asked last week about the increased salaries, he said he was surprised at Dechert’s decision in light of the economic downturn. But he said Morgan Lewis had always been at the top of the market and would evaluate its options before determining its first-year salaries for this year. Morgan Lewis currently pays its first-years $105,000. As for managers at other large local firms, most say they will not respond to the Dechert decision by matching or even increasing salaries at this time. But when asked what they would do if more Philadelphia firms bumped up salaries, most managers were less certain. Another legal recruiter said that aside from Morgan Lewis, two Philadelphia-based firms were most apt to raise salaries: Drinker Biddle & Reath and Blank Rome Comisky & McCauley. Unlike some other large firms, Drinker Biddle and Blank Rome not only matched Dechert’s first-year salary increase in 2000 but also matched or came close to matching pay for more experienced associates. And sources say both firms are coming off a strong economic year, though neither has profits per partner that come close to Dechert’s or Morgan Lewis’. While Blank Rome management declined comment, Drinker Biddle joined the fray. Chairman James Sweet was the only managing partner interviewed who indicated that his firm would entertain an aggressive response to Dechert’s decision. “That’s the question of the hour,” Sweet said of what would happen next in the Philadelphia market. “We’re always competitive in the market, but the last time this happened, we took our time and I suspect we’ll do the same now. “Our view is that we compete with Dechert for people. Whether that means we compete dollar for dollar or something different, I don’t know. But I think if we are going to compete we need to remain in the ballpark, and we are [currently] looking at ways to do that.” But at least four managing partners of large Philadelphia firms do not see a reason to match or even adjust their salaries. Pepper Hamilton executive partner James Murray said he thinks Dechert’s increase reflects internal salary structure tension between that firm’s Philadelphia associates and their higher paid counterparts in such offices as New York and Washington. “Because I can tell you it’s not a reflection of the Philadelphia market,” Murray said. “We’ll meet our markets, but with everything going on in the economy, I don’t think another round of associate salary increases is in the offing. “And I don’t think it’s in the best interest of the associates. They are smart people, and they have to ask questions about what would be expected of them [in terms of billable hours] after getting such an increase,” Murray said. “I don’t think we’ll respond unless we see a change in the Philadelphia market. Dechert can’t hire everyone. Now if there’s a change in the market, we’ll have to look at it. But there’s no indication that a move in associate compensation is warranted. I think Dechert’s decision was motivated by something peculiar to Dechert … . Morgan Lewis might chase them because they compete in some of the same markets, but I don’t know about the others. Although when egos get involved, decisions sometimes don’t mesh with the economic realities of the market.” Ballard Spahr Andrews & Ingersoll chairman Arthur Makadon said his initial reaction is that the firm will stand pat, though he acknowledged that other views could be expressed when the firm’s board of directors meets later this month. “We’ll continue to compete for talent, but we’re not going to match unless there’s a basis for doing so, and I don’t see one,” Makadon said. “We’ve dealt with salary gaps in the past, and you just have to work harder on the recruiting end. If the only thing you’re selling is money, then you have a serious problem. We offer a lot more than that.” Duane Morris Chairman Sheldon Bonovitz said he was surprised by the Dechert decision considering the economic climate. But he said the firm must have good reasons for implementing the raise. That being said, Duane Morris plans to keep its starting salaries at $105,000. Cozen O’Connor managing partner Tad Decker said his firm also has no plans to respond. A former general counsel at several local companies before joining Cozen two years ago, Decker said he does not believe Philadelphia’s client base would be pleased if local firms upped billing rates to foot the bill for the raises. “If you can raise pricing by 20 percent, then you can raise salaries by 20 percent [like Dechert did],” Decker said. “But I don’t think there are a lot of Philadelphia firms that can do that. Dechert and Morgan have large and profitable offices in New York and Washington, D.C., which means they have clients that can pay higher rates. We intend to be competitive but we’re also running a business, and clients come first.” Dechert can support its raises with profits per partner ($765,000) that are almost double every other Philadelphia-based firm’s, save for Morgan Lewis ($740,000). Blank Rome would be next in line ($440,000), followed by Duane Morris ($430,000), Cozen and Drinker Biddle ($415,000), Ballard Spahr ($395,000) and Pepper Hamilton ($365,000). Without the profits to support such a hefty increase — that would have to include similar raises for all other associates — other Philadelphia firms would have a difficult time competing with Dechert’s salary during an economic downturn. Barton Winokur, Dechert’s chairman, said the firm would not increase its billable-hour requirement for associates to pay for the increases and would not compress salaries for more experienced associates. In addition to putting its Philadelphia and Princeton associates on par with associates in other offices, Winokur said, the firm also wants to attract more elite entry-level and lateral candidates that might not otherwise consider working at a Center City firm. “The last time we did this, we did a halfway job,” Winokur said. “Now we’re going the whole way. One of the issues you have is that Philadelphia is not on par with other markets like New York, Washington and Boston when it comes to compensation. We have a second-class compensation structure here and this is the fifth-largest city in the country. This is a great place to practice, it’s only 90 minutes from New York … . We should not be a second-class city. “I know we have a lower cost of living, but psychologically that’s not how people think when they’re looking for a job. Look at us [at Dechert]. We got more people from Harvard last year in other offices like New York, Boston and Washington than we did in Philadelphia, which is our biggest office. That shouldn’t happen,” he said. “You don’t make money off of first-years, so this is a long-term investment. We’re in the talent game, and you have to try and put as much quality talent on the field at the same time. But I do think we would be helped if the market was better and more firms here were doing well [in terms of profits and billing rates],” he said. “Boston has four or five firms that are doing well. Washington and New York both have a ton. Chicago has five or six. Los Angeles has four, and San Francisco has five or six. In Philadelphia, it’s just Morgan Lewis and Dechert. I would love to see [all of the other large Philadelphia firms] be more successful.” Decker said he understands Winokur’s point — the quality of the Philadelphia market should justify higher billing rates. “It would be great if we could be Boston, just as long as the client would go along with it,” Decker said. “But right now I’m a little skeptical about that, especially in this economy where demand is flat at best.” Bonovitz said while he respects Winokur and Dechert, he has a different view about recruiting talent to the Philadelphia market. “Each legal market is different and each city has a different cost of living that you have to take into account when you are factoring in things like overhead and billable rates,” Bonovitz said. “In terms of Philadelphia, I think it’s not the destination city for law students with no connection to the region, and I don’t think compensation will overcome that.” Wayne, Pa.-based legal consultant Robert Denney said that he believes that about six or seven other Philadelphia firms will most likely wind up matching or coming close to matching Dechert, but that some other firms that have lower or declining profits will not be able to follow suit. “It will be interesting to see how they all approach it,” Denney said. “It’s really economic realities vs. perception in the market.”