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Views vary on local impact of Big Law’s ‘salary wars’

Managing partners at small and mid-size firms aren’t anticipating a trickle-down effect on attorney compensation in the Boston market from Big Law’s scramble to offer first-year associates annual salaries of $190,000 or more.

Instead, the consensus is that the smaller firms won’t feel the need to respond competitively to the pay bump enjoyed by associates at firms such as Ropes & Gray and WilmerHale, at least in the near term.

“The salary wars might be going on nationwide, but they’re going on at a certain altitude,” says John T. Morrier, managing partner at the 44-attorney Boston firm Casner & Edwards.

But the professionals who trade in legal talent aren’t so sure.

New York City legal recruiter Michelle Foster says the new pay scales at large firms will place pressure on Boston’s mid-size firms.

Catch me if you can

New York firm Cravath, Swaine & Moore kicked off the last salary war in 2016 by raising starting pay for first-year associates from $160,000 to a new Big Law industry standard of $180,000.

Another New York firm can be blamed for the latest stampede.

On June 4, Milbank, Tweed, Hadley & McCloy announced that it had raised its salary structure effective July 1. Though the headline was that associates in the 2017-2018 class would be paid $190,000, the firm revealed it was making corresponding increases to associates hired in the previous seven years. For example, the firm set $330,000 as the new annual base salary for the class of associates hired in 2010.

Since the Milbank announcement, law firms across the country have moved to match or even exceed the $190,000 benchmark. Industry website Above the Law has been tracking the pay increases across the country in a “Salary Wars Scorecard.”

According to the website, Boston firms Choate, Hall & Stewart, WilmerHale, Ropes & Gray and Goodwin have already raised annual salaries for starting associates to meet Milbank’s $190,000 mark. The benchmark has also been met by some international law firms with offices in Boston, including Proskauer Rose, Kirkland & Ellis and Jones Day.

New York firm Kasowitz, Benson & Torres upped the ante on July 9, announcing that it would be paying first-year associates $195,000.

WilmerHale declined a request for an interview concerning its salary structure. In a written statement, the firm simply says: “We have set compensation at market.”

A Choate spokesman confirms that the firm has upped its starting associate salary to $190,000 and base annual salary for sixth-year associates to $305,000. The firm says it otherwise doesn’t comment on employee compensation.

Ropes & Gray did not respond to a request for comment.

“Although the mid-size firms might not match what the Big Law firms are doing, at least some of them will raise salaries,” Foster predicts.

That could trigger an acceleration of the merger activity seen in the last year as increased competitive pressures cut into the profit margins of those mid-size firms, she adds.

Bad idea?

Some lawyers question whether it is smart business for firms to increase their salary structures at a time when clients big and small have been looking for ways to cut legal costs. Peter C. Lando for one says he’s surprised some big firms are making news raising associate salaries when clients continue to wield the leverage they do in contracting for legal services.

“Clients are being much more discerning about which firms they choose,” says Lando, co-founder of the Cambridge intellectual property boutique Lando & Anastasi. “Clients are much more open to working with smaller and mid-sized firms like our own than the big brand-name firms.”

Lando perceives a potential competitive advantage for other firms in the wake of Big Law increasing its overhead in the form of increased associate salaries.

“They’re just over-playing their hand,” he says. “They see the economy strengthening. Perhaps legal talent is a little bit harder to come by, but that just means you have to work more creatively, in my opinion.”

Morrier agrees that the current Big Law “salary war” seems ill-timed. It’s “counterintuitive” for firms to be hiking salaries when they’re getting contrary signals from their clients’ general counsel, he says.

“There are clients that want nothing to do with a firm that pays a lawyer with no experience $200,000 to start,” Morrier says.

Recruitment and retention

Laurie Flynn, a recruiter for Beacon Hill Legal in Boston, attributes the fact that the latest salary increase comes only two years after Big Law raised salaries in 2016 to the “tight” legal job market.

“The question is whether this is a short-term recruitment and retention initiative or a long-term strategy by the firms,” Flynn says. “I don’t know the answer to that question.”

Flynn acknowledges, too, that the cachet of being at the top of the market in terms of salary can be important to firms. If the pay increase was part of a long-term strategy for firms to “pull away from the pack” and differentiate themselves, that strategy cannot be viewed as a success given the number of firms that have matched the salary increases, she says.

Casner & Edwards’ Morrier says he fully expects several more “players” in the Boston market to succumb to the pressure of competing for top law school talent and wind up matching the new Big Law salary scale.

However, Morrier says his firm won’t feel the same salary pressure because it hires experienced lawyers with courtroom experience and clients of their own.

“We’re not only looking for lawyers who hit the ground running, but also those who stay with us for the long term,” Morrier says.

Judy St. John, a recruiter with the associate practice group at Major, Lindsey & Africa’s Boston office, says she expects all the big firms in Boston at least to match the $190,000 starting salary for associates. Some firms are even spicing up job offers with signing or “early” bonuses, she says.

According to St. John, the increase in salary structures is due as much to the need to retain legal talent as it is to attract new talent.

“Firms are anxious to retain the talent that they already have,” she reports. “I get calls all the time from associates who are completely burned-out and want to go in-house or to a ‘life-style’ firm.”

Linda J. Kline, managing partner at New England Legal Search in Boston, agrees that retention is a key factor behind the Big Law salary increases.

“On some level, associates at major firms are always looking to leave,” Kline says. “To the extent [the firm] can make it more attractive for them to stay, [it] is a good strategy.”

Kline says she expects firms like Foley Hoag, Nutter and Goulston & Storrs to join the club and pay $190,000 for first-year associates.

“They’ll lose out on hiring if they don’t match,” she says.

morrier-john

“There are clients that want nothing to do with a firm that pays a lawyer with no experience $200,000 to start.”

— John T. Morrier, Casner & Edwards managing partner

Domino effect?

While managing partners such as Morrier and Lando don’t see firms like their own being impacted by the new round of Big Law salary increases, St. John is another legal recruiter who thinks that Boston-area boutiques and mid-sized firms may not be as immune as they think they are.

St. John foresees smaller and mid-sized firms struggling to compete for and retain talent as a result of the new Big Law pay structures for one basic reason: supply and demand. She points out that law school applications are down, meaning the pool of candidates to fill openings is significantly smaller than what it has been.

“And associates are burning-out very quickly on both the corporate side and the IP side,” she says, adding that, overall, smaller firms are going to have a “big challenge on their hands.”

Cambridge’s Lando believes his IP boutique has already found a creative way to avoid what he describes as Big Law’s “blunt” strategy of throwing money at first-year lawyers. Lando & Anastasi identifies professionals with expertise in certain technical areas and sends them to law school to become intellectual property attorneys, Lando says.

The firm’s website currently identifies as employees six patent agents with degrees in the high-demand fields of chemistry, biotechnology and engineering who expect to earn their J.D.s in 2019, 2020 or 2021.

“We grow our own and supplement that with laterals from the marketplace that have grown dissatisfied in this [Big Law] structure,” Lando says.

Recruiter Robert L. Zinn, who heads the partner practice group at MLA’s Boston office, says he doesn’t think there’s an “apples to apples” comparison when analyzing Big Law’s pay scale impact on smaller firms.

“From the outset, [smaller firms] weren’t really in the running to attract the people who are going to be looking at potential $190,000-a-year salaries,” Zinn says.

Too much attention is being paid to the new salaries for first-year associates and not enough attention to the “domino effect” such pay increases mean for other associates at a firm, Zinn adds.

“Look at the total amount that just this one bump does to the entire associate community,” he says. “Where that money has to come from, whether it’s raising the capital contribution or simply more money out of the equity partner’s share, it’s not just those first-years that are making a dent in the bottom line; it’s the whole lineup. It’s impactful not just for the firms but most importantly for the clients.”

According to Flynn, a firm’s need to generate more revenue to cover the cost of salary increases could force law firms to choose between increasing their billing rates and  “squeezing” more hours out of associates.

“Neither of those [options] are particularly attractive,” she says.

Kline says she’s seen a trend toward more in-house hiring by clients seeking to avoid law firm billing rates for day-to-day matters.

“Companies are willing to pay those kinds of rates for super-specialized work or bet-the-company litigation, but in terms of routine work, no way,” Kline says. “Lots of companies have let firms know they won’t pay for first-year associates — that that time has to be written off.”

Lando understands firsthand the internal pressure created by across-the-board salary increases. What he labels the “catch me if you can” phenomenon he experienced as a lawyer at a large firm during the ’90s becomes a cost problem for clients, he says.

According to Lando, partners naturally are going to be protective of their own income when associate pay is increased, meaning an increase in billing rates for the client.

“The cost of doing business with these law firms for the client goes up,” Lando says.

Meanwhile, some boutiques elsewhere have felt compelled to enter the fray and compete with the big firms for top law school talent. For example, earlier this month the eight-attorney California litigation boutique Dovel & Luner reportedly raised its starting salary to $215,000.

But Zinn doesn’t foresee a wave of boutique firms trying to match Big Law pay scales.

“You may have a few of the high-end litigation or IP boutiques being able to justify that expense and pull some very high-level graduating law school students into their firms,” Zinn says.

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