The hottest issue that US in-house counsel will have grappled with at the start of the New Year is how to deal with the fall-out from last year’s 50% bump in US associate salaries, followed by the inflated year-end bonuses for associates at leading Wall Street firms.
Although US in-housers are groaning loudly about the impact that the salary spike will have on their legal budgets, it is unlikely that the increase in costs will be noticed in corporate boardrooms. After all, legal fees are still a small fraction of general and administrative (G&A) costs. It does not take a high IQ to figure out the real driving force behind in-housers’ unhappiness with associate salaries: first-year associates are now making more than most mid-level and many senior corporate law department lawyers. A few in-housers with children fresh out of law school have observed that their kids are making more than they are, with 30 years’ less experience in practising law. This has been a tough pill for mom and pop to swallow.
As the magic circle firms decide what to do about the disparity in associate pay across the pond, it is worth a few words to say what the City can expect to see in the way of cost-management efforts, because a very unhappy lot of in-house lawyers veil their revenge on Gundersons’ pay raise and its progeny.
Featherbedding
You can bet your last US dollar that the first thing we will see is a loud in-house chorus calling for higher in-house salaries. In-house counsel will make the case for more money by arguing that firms will lose experienced, talented lawyers with great “institutional memories” about their companies to the outside bar and will be unable to recruit replacements unless they close the pay gap. It may take a while to execute the strategy, but the bottom line is that they are right. Ultimately, they will have some success in reducing the disparity. It is all part of the regular life cycle of inside and outside remuneration.
