Milbank’s Latest Associate Raise Is a ‘Logical Next Step’ in Salary Brinksmanship

With Milbank yet again raising associates salaries—for the second time in less than a year—Big Law firms should expect compensation to keep escalating so long as demand stays strong and the deal work flows, legal experts say.

Already Thursday afternoon, firms started responding to the move.

McDermott, Will & Emery said it will match the new Milbank scale. “We’re on a fantastic trajectory and are really happy to be able provide this increase to our associates. We’re committed to being a leader across the board—and compensation is just a starting point,” firm chairman Ira Coleman said in a statement.

Cadwalader, Wickersham & Taft also confirmed Thursday that it had matched Milbank’s raises.

“As has always been the case, most of the peer firms, if not all, will follow suit,” said Stephanie Biderman, partner at legal recruiting firm Major, Lindsey & Africa. “We’ll see whether this remains or somebody tops it. Given how successful 2021 was and how difficult it is to retain talent, this is the logical next step of what is going to happen.”

Through that lens, Milbank’s raises didn’t come as a surprise to many. Many law firm leaders have said that 2022 has been so far a continuation of 2021 when it comes to demand. And sky-high demand is the root of the talent war—it takes large teams to staff such a high volume of work, so law firms are willing to pay attorneys more in order to continue capturing that work.

Without enough associates, some firms have had to turn deal work away. Outside of the obvious financial impacts of missing out on a matter simply for lack of manpower, firms also feel threatened when another firm with adequate capacity comes in and takes the work, said legal consultant Kent Zimmermann.

Last summer, when Milbank announced an associate salary raise from $190,000 to $200,000 for first-year associates, Davis Polk & Wardwell quickly raised the stakes to $202,500. That’s where it remained until Milbank announced $215,000 starting salaries on Thursday. Observers said many firms will likely wait to see whether Davis Polk again raises the stakes.

But whether money alone is an effective retention tool is questionable.

Vanderbilt Law School professor Caitlin “Cat” Moon pointed to a recent report by Thomson Reuters and the Georgetown Law Center that found that associate turnover in November reached 23.2% on a rolling, 12-month basis, nearly five percentage points above the 18.7% rate seen in November 2019—even as associates were being showered with six-figure bonuses and higher salaries.

“The knee-jerk easy response is: ‘Let’s pay folks more.’ To be clear, I think they’re worth every single penny they’re being paid. Law firms hit it out of the park financially last year,” Moon said. “It’s pay well, and; not just pay well.”

Firms have thought of creative ways to get an edge in the talent war, including rolling out new programs and perks. Some have looked to get around the issue by opening in smaller markets, such as Salt Lake City, in part to tap the associate market there and set up “production” offices where they can take advantage of a less competitive talent market and hire up to staff matters originating from other offices.

One such firm is Kirkland & Ellis, which opened up in Salt Lake City in September to “meet increasing client demand” and cited an “extraordinary talent pool” and area law schools at Brigham Young University and the University of Utah as drivers of the move.

Other firms, such as Quinn Emanuel Urquhart & Sullivan, have opened up hiring to attorneys outside of the markets where they have offices.

The financial toll of the continued salary brinksmanship was apparent last year, especially among elite firms. Am Law 50 firms saw more than a 16% increase in compensation expenses through the first three quarters of 2021, while Am Law 51 to 100 firms saw a 9.5% increase, according to the 2022 Client Advisory released late last year by Citi Private Bank and Hildebrandt Consulting.

Despite these increased costs, profits grew 13.4% on average, according to a recent report. In essence, so long as the work is there, the extra money is worth it. And with deal work continuing to pour in, there’s no end in sight to the compensation wars.

“This is driven by supply and demand. Demand for excellent associates is outstripping supply, raising prices. That will continue until an equilibrium is reached,” Zimmermann said. “That will likely happen when the economy cools and deal flow slows.”