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When it comes to what’s ahead for starting associates’ pay, C. Lash Harrison, managing partner of Ford & Harrison, puts it succinctly: “We’ve had the leap. Now comes the creep.” And “creep” may be overstating the outlook, according to a survey of Atlanta law firms. The “leap” Harrison cited covers that brief period around 2000 when starting pay at most large firms jumped about 33 percent, spurred by what Hildebrandt International consultant Michael D. Short calls “a perfect storm.” Business was booming for many firms, but when they went looking for associates, they encountered new competition–dot-com start-ups flush with millions after going public, and investment bankers, likewise loaded from bankrolling the deals. The result was unprecedented competition for hiring law school grads and a run-up in pay to $100,000 at most of Atlanta’s big firms. The pay jump stunned even law firm veterans. “We didn’t see the need,” said Philip J. Marzetti, managing partner of Paul, Hastings, Janofsky & Walker. “But the market did.” However, with the ensuing collapse of many dot-com start-ups, a paucity of transactional business and a soft economy, most law firms have held the line on further raises for four years. And this year is no different. With a surplus of law school graduates, most firms are in no mood to renew a salary war. Now firms talk of waiting for starting associate pay to catch up with the economy. Fisher & Phillips’ managing partner, Roger K. Quillen, said firms are “staying pretty much pat because the firms are still growing into those figures.” He added that firms won’t raise pay until there’s pressure. Quillen’s firm offered catch-up raises in 2002, going from $85,000 to $90,000. But he cautioned that he doesn’t see that happening again for a while. Asked how much pressure he now sees for raises, Quillen said, “None.” Alston & Bird’s hiring partner, Jonathan W. Lowe, also sees no push for raises. “We generally make decisions [about associate pay] on the basis of economics. We try to stay informed on the industry, and we’ve seen no indication that there’s any increase in starting salaries.” Alston’s last pay raise for new hires came in 2000, when the firm boosted start pay from $75,000 to $100,000 and added a $10,000 bonus for moving expenses, Lowe said. Even Harrison, who stands by his expectations for an eventual pay “creep,” said the supply of lawyers still exceeds demand. And he added that boosts in technology have made lawyers more productive. Michael D. Hobbs Jr., hiring partner at Troutman Sanders, also cited “the huge bump in applications” at law firms as an obstacle to raises in the near future. “When the recession hit, many college graduates who couldn’t find jobs went to law school, he said. “I was up at the University of Virginia, and their second-year class had 30 more than normal.” “[The pressure for raises] isn’t there today, [and] it’s not [there] next year,” Hobbs said, adding that there could be “possibly some pressure after that.” Troutman first-year pay last increased in 2001, from $90,000 to $100,000. Hobbs said he expects law firms here to hold off on raises until at least 2006, but “I would bet on 2007 if I was a betting man.” He said raises here could come a little later than some areas of the nation. The metro area tends to draw job seekers from elsewhere because of its reputation in the ’90s as a job Mecca, he explained. Hobbs said Troutman is busy and doing well but is hiring only the same number of first-year associates and extending the same number of job offers as last year. IMPACT ON SMALLER FIRMS The mood of Atlanta’s biggest firms is having an effect on their smaller rivals. Emmet J. Bondurant, of Bondurant, Mixson & Elmore, said, “We as a firm have not considered a change in the going rate for associate salaries.” The firm last raised its first-year pay in 1999, escalating from $72,000 to $100,000, said administrator Catalin Ritz. “The thing that would trigger it is if the major Atlanta firms, with whom we compete, raised their rates,” said Bondurant. “Then we’d have to match them. But I have not heard anything that the Atlanta [salary] market is about to change.” Bondurant may have been thinking of King & Spalding; the firm’s chairman, Walter W. Driver Jr., said, “We currently see no events comparable to those existing during the tech bubble in 1999.” The firm’s first-year pay remains at $100,000. Few law firm executives are as attuned to the first-year pay situation as Holland & Knight’s R. Douglas Wright, who is the hiring partner for first-year associates in the Atlanta office. “I don’t expect to see any significant [pay] increase for the foreseeable future,” said Wright, who views the dot-com pay explosion as unprecedented and doesn’t expect another. His firm went from $75,000 to $100,000 for first-year pay in 2000. He said the next raises, probably for the next two or three years, will remain within the federal cost of living figures, now about 3 percent. JUMP-STARTING PAY RATES So what would it take to move starting associate pay off its four-year flat line? Troutman’s Hobbs said look for the associate pay picture to brighten if there are salary increases among investment banking and consulting outfits and, to a lesser extent, in accounting firms, particularly in San Francisco, New York, Chicago and Boston. Scott A. Horstemeyer, managing partner at Thomas, Kayden, Horstemeyer & Risley, sees no likelihood of pay raises until there’s a reduction in the large number of well-qualified candidates seeking jobs. Wright, of Holland & Knight, said the principal driver of pay raises will be the extent of corporate transactional work, which he says is picking up in the Northeast but not in the Southeast so far. Another factor in hiring pay, Paul, Hastings’ Marzetti said, is that “the best and brightest are choosing other careers,” a situation that may result in a smaller pool of applicants and more competition for grads among law firms. Paul, Hastings’ Marzetti added that, while he hasn’t heard of any significant raises among first-years in Atlanta, starting salaries in Philadelphia’s bigger firms “rose a little bit” this year. Paul, Hastings raised first-year pay in 2001 from $77,000 to $100,000, where it remains. Marzetti sees a pattern to associate pay raises over the past 25 years. He said pay rose significantly in the late ’70s, then again in the mid- to late ’80s before its epic jump in 1999 and 2000. Hildebrandt’s Short foresees some pay movement but not across the board. He said some firms throughout the United States are foregoing across-the-board raises and instead are rewarding first-years who show immediate promise with bonuses and other merit compensation packages. However, he said that approach has yet to surface among Atlanta firms. He views the four-year drought in raises for first-years as a natural response to the late ’90s jump. “The jump was so large” it was the equivalent of normal pay growth over three to four years. “The pendulum will shift,” he added. SIGNS OF ECONOMIC GROWTH Another positive pay factor that could come into play after the presidential election is an improving economy, said George T. Manning, partner-in-charge for Jones Day in Atlanta. Manning’s firm last raised first-year pay in 2000, from $80,000 and an $8,000 bonus to $110,000 with a $4,000 bonus. “There has already been an escalation in transactional activity [in Atlanta] coming off a slower summer,” Manning says. “We expect the improving trend to accelerate after the election-related pause. Our nontransactional practices have always been countercyclical and are remaining quite busy, especially in the intellectual property area. “My point is that the signs of a reinvigorated transactional practice are already there. Interest rates have remained stable with rare exception, companies are reporting improved earnings and management teams are poised to act. I believe that once the [presidential] election is resolved and no new terrorism occurs, we will see a strong finish to 2004 and an active deal flow in 2005,” he said. Fisher & Phillips is also seeing signs of economic growth. Said Quillen: “Last year, our gross was up 14.9 percent, and net income was up 23.7 percent. We had a great year in ’03, and right now we’re up through the first eight months with a 14.1 percent rise in gross, while the net is up 29.3 percent.” Horstemeyer, of Thomas, Kayden, said his firm’s business also has picked up after a “steady” two years. “There hadn’t been any growth. Now we’ve seen a recent trend that this workload is increasing. I think there’s a pause because of the election, but we’re seeing an increase in patent applications work as well as in intellectual property,” he said. Horstemeyer said that associates looking for internal signs of a firm’s recovering should be monitoring billings and new cases. “They’re directly indicative of an upturn. Externally, we’d look for greater corporate profits, greater R&D investment by companies and more merger and acquisition activity, plus increases in stock value on NASDAQ. We represent a lot of companies on NASDAQ.” Unlike most firms here, Thomas, Kayden offered a big raise post-2000 to its hiring class. The firm went from $100,000 to $113,400 in 2001, with a signing bonus of $10,000.

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