(Reuters) – A new round of pay increases at large U.S. law firms may be harder to swallow than other recent hikes, with some in the industry predicting fewer firms will rush to adopt salaries ranging from $215,000 for brand new lawyers to $385,000 for experienced associates.
Those are the new top-market rates after Milbank upped salaries for its associates by as much as $20,000 last week. Already at least 10 U.S. law firms have matched the new scale.
The raises follow widespread pay increases and hefty bonus payouts in 2021, adding to an already-rapid rise in law firm expenses.
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Associate compensation in November was up 11.3% year-over-year at 171 large and midsized U.S. law firms, according to a report from the Thomson Reuters Institute and Georgetown Law’s Center on Ethics and the Legal Profession.
The most profitable firms can absorb the added expense, at least while client demand remains high, industry consultants said. But for others the raises cut deeper.
“It is not something all firms will be able to keep up with,” said law firm consultant Marcie Borgal Shunk of The Tilt Institute.
Since Milbank’s raises last week, firms including Baker McKenzie; Fried, Frank, Harris, Shriver & Jacobson; Goodwin Procter; McDermott Will & Emery; and Steptoe & Johnson have adopted the new scale.
“The elite firms match the market rate,” said Bruce MacEwen of law firm consultancy Adam Smith Esq. “It’s not even really a decision these firms can make. They just have to do it.”
Fear of attrition is one driver. As of November, 23% of associates at large and midsized U.S. firms had quit during the past year, according to the Thomson Reuters Institute-Georgetown report. (The Thomson Reuters Institute is separate from Reuters but shares the same parent company.)
Lawyers typically don’t cite pay as a top reason for changing jobs, MacEwen said. But that’s usually because firms keep in step on compensation, he added.
“If somebody falls behind, then all of a sudden, it is a differentiator,” MacEwen said.
In announcing last week’s raises, Milbank cited its financial performance, and law firm revenue and profits have swelled lately at many large firms. The gains have been uneven, however – Wells Fargo Private Bank’s Legal Specialty Group projected an average 17% revenue jump for the 50 highest-grossing U.S. law firms as ranked by The American Lawyer, compared to a 10% increase for lower-ranked firms.
Firms in the second camp may find themselves in a bind. Hiking salaries can help them compete for associates in a hot talent market, but they’re still feeling the pain from the last round of raises, said Kristin Stark, a principal at law firm consultancy Fairfax Associates.
“Many firms are now just absorbing the impact of the comp increases they made last year,” she said.
Stark predicted most of the 200 highest-grossing U.S. law firms will raise compensation in the coming months, although not all will match the Milbank scale.
“If demand holds, ultimately this will trickle down,” she said.
But if the richest firms continue to raise salaries, the matches will eventually get less frequent, said Bill Josten of the Thomson Reuters Institute, who consults with law firms.
“I think it’s inevitable you’re going to see some firms say, at some point, we can’t keep up any longer,” he said.
Read more:
N.Y. law firms raise starting salaries to $215,000 as lawyer pay race continues
The legal talent war that broke out in 2021 shows no sign of slowing down
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Additional reporting by Sara Merken
Our Standards: The Thomson Reuters Trust Principles.
https://www.reuters.com/legal/legalindustry/associate-raises-are-back-will-fewer-law-firms-follow-this-time-2022-01-25/
