Firms in New Jersey have begun to catch the wave of salary hikes that began on Jan. 22 when New York’s Simpson Thacher & Bartlett raised first-year associate pay to $160,000.

Latham & Watkins announced last Friday that it would raise first-year associates’ base salary to $145,000 in its U.S. offices outside New York, including Newark, and to $160,000 in New York.

On Sunday, Morgan Lewis & Bockius announced it was bumping first-year salaries to $145,000 in Princeton, Philadelphia and Washington, D.C.

As of Monday afternoon, New Jersey’s homegrown top 20 firms were taking a wait-and-see approach, with some boasting that they are not influenced by other firms’ pay scales.

But, as was the case with a run of salary increases last spring – also spurred by out-of-state firms – local shops may have little choice.

In the aftermath of Simpson Thacher’s increase last month, large firms in major U.S. cities promptly began ratcheting up their starting salaries, though not necessarily to Simpson’s stratum.

In his memo announcing Morgan Lewis’ raise, managing partner Thomas Sharbaugh said the associates committee had waited for the salary derby to play out in a number of markets before deciding how much the hike should be.

Some firms in D.C., Boston, Chicago, Miami, Los Angeles and San Francisco have linked their increases to the relative costs of living in various locales, paying associates in their New York offices $160,000 whereas first years in non-New York offices may earn $145,000.

All of this seems an instant replay of what happened early last year. The first-year base salary at most large New York and California firms had been $125,000 for about five years until December 2005, when Los Angeles’ Gibson, Dunn & Crutcher increased its base to $135,000.

Other West Coast firms followed, and last February, when New York’s Sullivan & Cromwell bested Gibson, Dunn with a $145,000 base, other bellwether New York firms matched that figure.

By March, large Philadelphia firms like Morgan Lewis and Dechert were swept up in the current, hiking their base rates to $135,000.

The wave soon hit New Jersey, led by local offices of out-of-state firms, notably Latham & Watkins ($135,000), Drinker Biddle & Reath in Florham Park ($125,000) and Reed Smith ($120,000).

New Jersey-based firms couldn’t quite meet those levels but did inch up their starting pay, led by Newark’s McCarter & English and Sills Cummis Epstein & Gross and Roseland’s Lowenstein Sandler, each offering $115,000. Close behind at $110,000 were Pitney Hardin, of Florham Park, and Riker, Danzig, Scherer, Hyland & Perretti, of Morristown.

Entry-level compensation, including signing bonuses, went up an average of 7 percent to about $106,000, from about $99,000 in 2005, according to a Law Journal survey last May.

What happens next may depend on how confident New Jersey partners are that their starting salaries this fall can compete with those in New York and Philadelphia.

Even before Simpson Thacher’s announcement, some New Jersey firms had decided to boost 2007 compensation considerably higher.

� Day Pitney (former Pitney Hardin) of Florham Park now has a rate of $120,000 for first-year associates in New Jersey and $130,000 in its New York office for the fall of 2007.

� McCarter & English, Sills Cummis and Lowenstein Sandler have hiked first-year associate compensation to $125,000 from $115,000.

� Gibbons bumped up its first-year compensation in Newark and New York to $120,000 from $97,000 last year.

� Drinker Biddle associates starting this fall will earn $135,000, in Florham Park as well as in other offices.

“What transpires in New York is a factor,” says hiring partner Michael Adelman. “I don’t know that it’s a big factor. We certainly compete for many of the same candidates, but we’re not going to pay $160,000.”

Sills Cummis hiring partner R. Max Crane is equally stoic. “We are sensitive to the New York market,” he says. “At the same time . . . we’ve made a conscious decision not to go directly against the New York market.”

Still, the frenzy going on out of state can’t help but infiltrate New Jersey board rooms.

Mitchell Rait, the chief operating officer at Short Hills’ Budd Larner, says he expects Simpson Thacher’s hike to figure into his firm’s equation the next time it meets to discuss salary hikes. “It’s possible we’ll raise salaries,” says Raitt. “I don’t think any firm is immune from what’s going on in the marketplace.”

Related Chart: First-Year-Associate Compensation at New Jersey Firms