Yet again, the associate salary market has been in an absolute frenzy. Barely six months after raising all their associate classes by $10,000 to $15,000 per year, Milbank upped the ante in late January one more time. First- through fourth-year attorneys saw another $10,000 added to their annual salaries, while midlevels and seniors moved up $20,000.
Milbank shifted the market both last year and this year, inspiring a wave of matching moves throughout the upper echelons of private law. But even those massive leaps in compensation haven’t ended the upward trend. In February, elite boutique Brewer, Attorneys & Counselors out-Milbanked Milbank and announced $235,000 starting salaries for first years, with commensurate raises for their senior classes and nonattorney professionals. And then just this Wednesday, megafirm Davis Polk & Wardwell surged into the market lead, matching the Milbank scale for junior associates and exceeding it for mid-levels and seniors.
How long Davis Polk’s lead lasts will be anyone’s guess. If you’ve tried to hire lateral attorneys in the past year or two, you’re well aware the market for legal labor remains blisteringly hot. Salaries and signing bonuses that would have seemed absurd in the 2010s are now common. It’s not that Biglaw has suddenly decided to raise associate salaries out of the goodness of its heart. Demand for legal services continues to be high coming out of the pandemic-driven blip of a recession we experienced in 2020. Deals keep getting done and lawsuits keep getting filed at tremendous rates, and so demand for associates to handle the laboring oar on those matters has driven salaries up and up.
As a former associate myself, part of me is deeply happy to see the laws of supply and demand are working in their favor. But the law firm manager in me is frankly worried. I’ve written about the problems behind these raises time and time again. While the sky may not have fallen yet, we’re starting to see stress fractures on the Biglaw model that could lead to bigger problems.
Where’s This Money Coming From?
There’s no such thing as a free lunch. Funds for associate raises have to come from somewhere. Generally, it’s from some combination of (1) the firm’s ownership agreeing to take a smaller cut of profits to fund higher salaries, (2) the firm raising rates and risking angering their clients, or (3) the firm increasing its expectations for associate performance. No partner likes the idea of cutting their own take-home, leaving Option 1 dead in the water at many firms. Clients are already complaining about paying exorbitant rates to help firms maintain their associate salaries, meaning raising rates under Option 2 remains unattractive. Because the money is being used to fund associate raises anyway, most firms ultimately turn to Option 3. Associates get a bigger workload to match their slightly larger check.
The problem here is that Option 3, increasing associate expectations, isn’t remotely sustainable in the long run. It’s arguably been unsustainable for the past several years. Biglaw associates were already experiencing burnout and turnover at tremendous rates before the pandemic due to the crushing expectations needed to keep up with their old salaries. Biglaw already demands peak human levels of mental fortitude to keep churning away billing thousands of hours a year. Mental health issues such as depression and substance abuse are already rampant. Our associates need more time away from work, not less.
Most firms feel compelled to raise their own salaries to match their competitors in lockstep. Although that’s economically rational for individual firm actors, for the industry as a whole it’s madness. Raising salaries in lockstep pushes us further down the path toward a culture of overwork and burnout.
A Balloon Ready To Pop?
Beyond just being unsustainable as a matter of the associates themselves, it’s also worth examining whether these new raises can bear the massive economic uncertainty into which we are currently hurtling. Just as Biglaw is committing to higher spending levels, demand for legal services appears to be beginning to soften. Macroeconomic indicators are also looking less than encouraging. Inflation hit 7% over 2021, the fastest rise in 40 years, and appears ready to continue shooting upward. The Fed is trying to somehow thread the needle of cooling off inflation by raising interest rates without simultaneously triggering a recession. Then there’s the ongoing Ukraine situation, which at a minimum will impact energy prices for the foreseeable future — and there are many other worse scenarios that are possible. There are any number of reasons there could be a correction or a full-blown recession on the horizon.
When the economy as a whole suffers, our industry generally suffers with it. Anyone affected by these latest rounds of the salary wars almost certainly wouldn’t have been in the industry when the 2009 crash hit. I was an associate during those times. It was brutal. At Biglaw firms across the country, practice groups were slashed and burned, offers of new employment were rescinded, and even tenured attorneys unexpectedly found themselves packing up their desks and hunting for work amid a crush of thousands of other unemployed lawyers. Our industry needed most of the following decade just to get back to where it had started.
The consensus history today is that law firms of the mid-2000s were bloated and inefficient, frittering away their budgets on any number of things they didn’t need, including excess headcount and exorbitant associate salaries. Firms weren’t keeping themselves lean, weren’t preparing for any potential bumps in the road, and were depending on times staying fat and bountiful to keep the whole thing running.
If all of this sounds ominous, you’re right.
Where We Go From Here
The question is one of mindset. A firm that’s blindly raising salaries trying to keep up with the Joneses without putting thought into whether those salaries are sustainable is the kind of firm that’s going to suffer most when the downturn hits. Firm leaders need to take a deep breath, take a break from the bidding wars, and look more deeply at some of the warning signs. Firms need to acknowledge and plan for that risk before agreeing to push associate salaries further.
I’m not urging us to pay associates less. I’m urging thoughtfulness and open communication. I think many associates would appreciate being told directly that their firm leaders were consciously choosing to step back from the base salary wars in favor of more balance. And, hey, if billables remain bountiful, nothing stops the firm from cutting bonus checks that could put their associates ahead of the competition in terms of actual take-home. What’s important is that, if and when the coming downturn happens, we don’t find our industry committed to promises it can no longer honor.
James Goodnow is the CEO and managing partner of NLJ 250 firm Fennemore Craig. At age 36, he became the youngest known chief executive of a large law firm in the U.S. He holds his JD from Harvard Law School and dual business management certificates from MIT. He’s currently attending the Cambridge University Judge Business School (U.K.), where he’s working toward a master’s degree in entrepreneurship. James is the co-author of Motivating Millennials, which hit number one on Amazon in the business management new release category. As a practitioner, he and his colleagues created and run a tech-based plaintiffs’ practice and business model. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.
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