Arnold & Porter, Biglaw, James Sandman, Money, Skaddenfreude

Skaddenfreude: More Criticism of Associate Pay Raises

By  
on

Wow. Late Friday afternoon, we briefly discussed an article by D.C. bar president James J. Sandman, a partner at Arnold & Porter in Washington, bemoaning the recent associate pay raises. The article generated a strong reaction, judging from the avalanche of reader comments (75 and counting; mostly insightful, and mostly disagreeing with Sandman).

We emailed James Sandman, offering him space in ATL to offer a further defense of his article. We haven’t heard back from him yet; but if we do, we’ll let you know.

In the meantime, here’s an American Lawyer article that raises similar concerns. It’s a news rather than opinion piece, but the partners quoted in it voice sentiments similar to Sandman’s. Some excerpts:

A partner at Greenberg Traurig was meeting with attorneys from five law firms when he learned that Simpson Thacher & Bartlett had raised associate salaries across the board.

“Every BlackBerry in the room started flashing,” he recalls.

It was 4:30 p.m. on Jan. 22. At least five firms matched the next day, and by the end of the week, the sticker price for a new associate in the New York market was up for the second time in a little more than a year — to $160,000.

The raise surprised competitors and legal consultants alike and caused many to question whether another pay increase makes sense. They point out that pay isn’t associates’ main gripe (uncertain partnership prospects and grueling hours top this list). Robert Link Jr., managing partner of Cadwalader, Wickersham & Taft, goes even further. If improving associate morale was Simpson’s goal, says Link, the raise may do more harm than good.

A higher salary “puts more pressure on productivity and hours,” says Link, exacerbating precisely the quality-of-life issues that make junior lawyers unhappy.

“I don’t know what Simpson was thinking,” he adds.

It’s similar to Sandman’s comment:

“I don’t understand what causes a firm be the first to increase the salary of a brand-new lawyer from an already eye-popping $145,000 to $160,000. There is no competitive advantage in doing so. Other firms will surely follow suit, and the firm that led the market will quickly be indistinguishable from the rest of the pack.”

So, what WAS Simpson thinking? Discussion continues after the jump.

Sponsored

From the American Lawyer piece:

“The perception that we’re paying attention to compensation for associates will hopefully earn us goodwill,” says [Simpson Thacher Chairman Philip “Pete”] Ruegger. If it’s attention he wants, mission accomplished. The raise drew a blizzard of media attention. Law students, lawyers at Simpson and potential laterals could not have missed the news.

That may be true, in part. The raise certainly made STB a hero among the readers of Above the Law.

Another reason for the raise, according to Ruegger, was getting a leg up in the competition for talent in law schools. That competition is fierce. Firms are growing, and law schools are increasingly unable to meet their needs….

Ruegger’s third explanation for the raise — retaining midlevel associates — may come closest to the heart of the matter. Simpson is a leader in the representation of investment banks and private equity firms as well as in the small club of firms that represent the big hedge funds. The associates who work on these matters make a lot of money for Simpson, and the firm is desperate to keep them.

Sponsored

The efficacy of this strategy is more questionable:

But if it’s these people Simpson wants to reach, the firm may not have chosen the best message. The pay increase speaks loudest to law students, according to consultant Carolyn Wehmann. Nor will it will change the game in terms of compensation. Law firms can’t hope to match Wall Street. A third-year associate recently left Schulte Roth & Zabel for a hedge fund with a salary approaching $700,000, according to Georgina MacKenzie, a New York-based director at Michael Page International, a financial services recruiting firm.

Wow. A third-year leaving for $700K makes Wachtell Lipton money look like chump change.

As for what’s really driving Simpson Thacher, personally we found this reader comment rather interesting:

Simpson Thacher raised salaries to make it more costly for other firms to enter NY. This was not a competitive move vis-a-vis other NY law firms in the competition for salaries, but to make it hard for non-NY firms, especially those from Londa, DC, LA, etc., to make successful inroads into NY. That is the only thing that rationally explains the salary increase. “Raising rivals costs” is a well known antitrust theory of market exclusion.

If this was STB’s goal, it may have succeeded, at least in part. The LIST OF SHAME still has seven members (these eight firms, minus Baker Hostetler, which just matched).

And even firms that did match the base salary increases may take a hit on profits per partner in the next AmLaw 100 survey. This will hurt them in recruiting gunner-type associates and, more significantly, lateral partners with big books of business.
Simpson Thacher is playing hardball. Its message to non-Gothamite rivals: If you can’t stand the heat, get out of the kitchen — or you will get burned.

Is Raising Salaries the Best Way to Retain Associates? [American Lawyer]

Earlier: Skaddenfreude: Weekend Open Thread

Topics

, , , , , , ,