The latest associate salary increases in Big Law, on top of last year’s pay bumps, could set off another wave of matches across Big Law over the next few weeks. But far beyond that, the ripple effects in the legal industry—and each associate’s career—could be far-reaching in the long run.
The consequences could include a lower margin of error in associate work, while young lawyers themselves may need to recalibrate their career moves, according to law firm leaders and legal market observers. Meanwhile, clients could seek out cheaper legal advice for some matters, especially when faced with more aggressive rate increases that may follow the pay bumps.
These potential outcomes stem from Milbank’s decision earlier this month to boost its associate salary scale—already pushing some competitors to announce similar moves—as well as the broader trend of salary brinksmanship across the legal world.
Although the increases naturally prompted celebration amongst those who will receive them, associates could face more pressure at work as the standard cost for their work increases.
Michael Hammer, CEO of Dickinson Wright, noted that higher salaries often mean higher expectations, and firm leaders may consider tightening enforcement of quotas or yearly benchmarks if associates are getting more base pay anyway.
“It does put more pressure on their performance, and we have less leeway to bonus them out when they fall short of the various performance metrics due to rising compensation,” he said. “The increased expense reduces the wiggle room.”
The associate turnover rate is already shockingly high, at 23.2% in 2021, prompting some to question ”whether the approach to the talent war that is being taken by most firms is sustainable for the long term.”
Despite the increased pressure on associate performance, the raises may be enough to keep some associates in Big Law longer, instead of moving in-house.
As the gap grows between Big Law and legal department salaries, making the financial jump from the former to the latter could become more difficult. That could result in a certain cohort of associates missing their best chance to land where they want to, said Scott Yaccarino, a recruiter at Empire Search Partners in New York, which handles moves in both the law firm and in-house worlds.
“We all have to make decisions based on economic and opportunity cost, and every time law firm compensation goes up, it recalibrates the decision that associates need to make, who don’t see themselves necessarily as wanting to stick around to make partner,” Yaccarino said.
He said the window to make a move in-house is typically the widest for a fifth- or sixth-year associate. After that point, if there’s a company looking for an eighth- or ninth-year attorney, they’ll more than likely want someone who has practical in-house experience.
“It’s a real devil’s choice,” he said, adding that the decision to stick around a little while longer because of a salary increase “comes with ramifications that I frankly don’t think some associates will appreciate or think about.”
And for those lawyers already working in corporate legal departments, they face the possibility of aggressive rate increases this year from their outside counsel as a result of the compensation wars.
To clients, rate increases are similar to a big increase in gas prices: In the short run, there’s not a lot you can do except cut out some unnecessary trips and continue to pay the price at the pump, said Jason Winmill, a consultant at Argopoint who advises corporate legal departments.
But in the medium and long run, he said, you might buy a hybrid or move somewhere where you can take the subway to work.
In other words, he said, the long-term rate increases as “not sustainable” for clients.
“And in-house counsel will start to identify and create substitutes for premium-priced outside counsel where it can. And those substitutes will include shifting to lower cost but quality law firms, using competitive pressures and market dynamics to attract better pricing from law firms, in-sourcing certain types of legal work where possible and, ultimately, selectively doing without [legal advice],” Winmill said.
Hammer, of Dickinson Wright, added that the higher salaries could ultimately lead to more cooperation between firms at the top of the Am Law 200 and Second Hundred or smaller firms. He said if clients respond to higher costs by deciding to mix and match firms on matters more frequently, there often are ways to divvy the work that makes sense for everyone involved, despite the competitive nature of the business.
“There’s a way to handle it and keep the client happy. The very top firms can keep the work, because they have the very large bench strength to handle it there, but then the clients don’t have to pay the highest fees to do smaller work,” he said. “It’s not always the case, but there’s that opportunity out there, and I know we’ve had successful relationships in that regard.”