By Dylan Jackson, Patrick Smith, and Andrew Maloney for Law.com
It’s here. After an intensely competitive associate lateral market has gripped the industry since the beginning of the year—flush with signing and special bonuses—Milbank has upped the ante by announcing that associates will see a salary bump starting July 1, with first-year salaries now at $200,000 per year.
Not long after Milbank announced, McDermott Will & Emery and Cadwalader, Wickersham & Taft and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo announced matching salary scales of their own.
The cast of firms that followed Milbank is somewhat unusual given their relatively lower profit per equity partner rankings in the Am Law 200, No. 37, No. 34 and No. 54, respectively.
But legal recruiter Sharon Mahn said the stakes for many firms are incredibly high given the blistering associate talent market. She added that many firms saw better-than-expected years, whether due to a deft pivoting to remote work or a boom in certain practice areas.
“Money is very important to associates and firms that don’t keep up with [compensation] will have issues of retention,” Mahn says. “Firms, whether it’s true or not, need to show they are in a real position of strength. For a lot of reasons, firms will feel pressure.”
More raises at other firms are sure to follow, says Stephanie Biderman, a managing director with Major, Lindsey & Africa’s associate practice group. It took several days, or even a week, for firms such as Cravath, Swaine & Moore and Kirkland & Ellis to announce raises of their own in 2018, the last time salaries grew.
“Usually, if you look at the prior salary wars, the special bonuses, and then the spring bonuses, there are going to be firms that fall in line. Just based on that, I suspect that the peer firms will [increase associate salaries],” she said.
But what’s most interesting going forward, she added, is who else these “peer firms” will be. The COVID-19 pandemic has had an uneven effect on the financial successes of the legal industry. While many firms were just happy to end the year flat, others saw their revenue and profits soar.
Many experts see last year’s results as evidence that the gap between the wealthy and ultra-wealthy firms is widening. The decision whether or not to raise salaries to compete for talent, and take on millions in overhead costs, may be a sort of gut-check for Big Law.
Milbank’s gross revenue in 2020 rose 15.6% to $1.235 billion, while PEP shot up 16% to $4.492 million.
McDermott is coming off its second straight year of double-digit revenue growth and a 25.5% increase in PEP. At Cadwalader, revenue dipped 1.4% in 2020 to about $452.57 million, while PEP dropped about 15% to $2.554 million amid a 22% expansion in its equity partner tier. Mintz last year saw 33.5% growth in PEP to $1.89 million and 9.1% growth in gross revenue, crossing the $500 million mark for the first time.
In looking at the rest of the Big Law landscape, Biderman said, “I feel pretty confident the top-performers will match, but it’ll be really interesting to see where that line is drawn.”
Law firm consultant Paula Alvary, a founding Principal of Hoffman Alvary, said firms are dealing with “enormous workloads” that give them the ability to make big offers, because they know the work is there. That could translate to many firms matching Milbank, she said, but “I think we’ll have to wait and see.”
“All I could really tell you is that I’ve been in meetings all day, with one firm after another saying, ‘Uh oh. Our agenda for our executive meeting just changed.’” Alvary said. “In a matter of only hours since this announcement, firms are being compelled to take a close look at it.”
She said it’s still too early to guess exactly which firms will match Milbank’s move, and how many, but that it’ll likely reflect where they’re at in the market, and who their competition is.
Legal consultant Kent Zimmermann noted that the calculation is only aggravated by the fact that law firms aren’t just competing with each other anymore.
“Firms are in a tough spot. They are not only competing with other firms, but tech and life sciences companies are now paying their in house teams close to what Big Law is, and many of them offer more flexible environments than most law firms. Some even provide company equity,” Zimmermann said.
The raises the stakes for everyone, he explained. ”Firms used to have an advantage there, but I think this is an indicator of how tech and life science companies are really driving the economy now, and that is becoming very real for law firms.”
McDermott managing partner Ira Coleman agrees.
“Clients understand that Big Law is competing with many other industries for the best talent,” Coleman says. Other sectors pay more than law and seem to offer cooler, broader opportunities for ‘exits,’ We must dig in and do better.”
Marcie Borgal Shunk, founder of the Tilt Institute, noted that in the management consulting model, where competition for young talent has been similarly fierce, there’s a key difference in how compensation fits with the organization’s long-term plans.
The leading consultancies “go for the elite and pay top dollar with the full expectation that only a handful will remain on and eventually become partners,” she said in an email. ”Law firms rarely think this way, though perhaps they should.”
“The short-term mentality of law firms typically falls short of [the consultancy] model. They compensate well, but many leave a lot to be desired in terms of the experience they deliver, professional development investments and how they transition lawyers out,” Shunk said.
Lizzy McLellan contributed to this report.