Nationwide Pay Raise Watch: Could Philadelphia To $160K Drive NY To $190K?

Could good news for Philly translate into good news for other markets?

Philadelphia: it’s all about the Benjamin. The city abounds in tributes to its famous founding father, Benjamin Franklin. It even boasts a museum devoted to his life and times.

And maybe Philly will be all about the benjamins, plural — as in hundred-dollar bills. There’s speculation afoot that the new going rate for first-year associates in this city could rise to $160,000.

What’s the basis of the speculation? And could a Philadelphia pay raise have implications for other markets?

The starting salary for incoming associates at the major Philadelphia firms is generally $145,000. But it might be headed higher, according to a report from Gina Passarella for the Legal Intelligencer:

First-year associate salaries are on the rise at some Pennsylvania firms with at least one firm with a presence in the state paying out $160,000 to new associates this year.

DLA Piper, which has around 40 lawyers in Philadelphia, will pay first-years $160,000 this fall, according to information on first-year hiring provided by the firm. That is up from $145,000 paid to Pennsylvania first-year associates in years past. But the firm doesn’t currently have any first-year associates scheduled to start in Pennsylvania this fall.

Hmm. So DLA has just 40 lawyers in Philly, not a huge presence, and doesn’t have any incoming associates for the fall. Perhaps all their talent is tied up in the country of Africa.

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But in addition to this theoretical “raise” at DLA Piper, there are other Philly-related rumblings. One Pennsylvania-centric firm is raising salaries in New York to $160,000, and another is raising salaries in Philly itself, although not to $160K:

Paying $160,000 for first-year associates was something Reed Smith’s New York office partners were looking to do for some time, according to a report last week from Legal affiliate New York Law Journal. The paper reported that Reed Smith was increasing its starting salary come Jan. 1 to $160,000 in New York in an effort to match the market rate….

Saul Ewing has increased its starting salary as part of its effort to attract top talent, managing partner Barry Levin said. The firm increased starting pay from $125,000 last year to $135,000 this year. Saul Ewing has gradually increased its starting pay back to its height of $135,000 in 2008 since reducing it post-recession to $110,000.

Better call Saul? New York associates might scoff at $135,000, but if you look at the NALP buying power index, you’ll see that a salary of $87,210 in Philly is the equivalent, when you adjust for cost of living, of $160,000 in New York. And to think that Philadelphia is just a short train ride, an hour to an hour and a half, away from NYC — indeed, some have called Philly the “sixth borough.”

This raises the question: why slave away in Manhattan for $160,000 when you could be living like a prince in nearby Philadelphia? Could a raise in Philly spread to other markets?

Altman Weil principal Ward Bower said starting salaries have been relatively static for the past five years. He said some firms may feel that, given their economic performance is improving, it might be a good time to make a move on starting salaries.

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Actually, they’ve been pretty static for more than seven years. January 2015 will mark eight years since Simpson Thacher took New York to $160,000 (a raise that later spread to many other markets, even if not Philly). Isn’t it about time for another raise?

Inflation has been low since 2007, but it hasn’t been non-existent — especially when it comes to the cost of legal education.

Bower also attributed a rise in starting salaries to the “tremendous amount of publicity” that has been given to law school debt. He said firms could be looking to ease their associates’ debt burdens and create a positive effect on morale. Bower said the same phenomenon can be seen on the lower end of the labor market as some companies look to adopt a living wage rather than a minimum wage in an effort to attract and maintain talent.

While salary wars among law firms have not been in vogue since right before the Great Recession, competition among law firms for top talent could result in the return of firms increasing salaries to match their competitors. “I think eventually, if the legal economy stays solid, we’ll see some of that come into play in order to get the best graduates they can possibly attract,” Bower said.

Exactly. Sure, there’s a huge surplus of law school graduates generally, but the numbers look quite different when you focus on the top law school graduates who are courted by Biglaw. The market for them could be tightening, with entry-level hiring at large law firms on the rise.

And the Biglaw firms are starting to face competition from elite boutiques that pay more than $160,000 — a group of firms we call the $160K-Plus Club. Could salary increases in smaller markets like Philadelphia and Miami, plus competitive pressure from smaller firms, help bring about NY to 190?

“NY to 190? It’s about time.” That’s what my colleague Elie Mystal wrote — back in 2011.

Look at the firms with the highest profits per partner in 2013. Pretty much any one of these firms could make the move. Wachtell already pays more than $160,000; Quinn Emanuel could easily afford to. Cahill already pays out big bonuses; raising base salaries wouldn’t be a big deal. S&C and Paul Weiss had strong years in 2013, and they seem to be doing well in 2014. The same goes for Cravath and Simpson, which are both benefiting from the current M&A boom.

So c’mon, guys: NY to 190 (or even NY to 180, which wouldn’t be bad). Just Do It.

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