The $160K BigLaw BigLie?

Is there something fishy about the reported salaries of first-year associates in Biglaw?

Look around this page: Biglaw bonus season is off and running. Some are even saying it’s “$nowballin.” The early numbers are near pre-recession levels. Law firm confidence — and desire to retain talent — is apparently soaring. This is great news, right? A rising tide lifting all boats and all that? When it comes to generous law firm compensation, historically it has been safe to assume that the industry’s herd-like instincts work for the benefit of associates, as most firms would be “forced” to follow. Of course it is too early to be sure, but a different, more ominous dynamic might be at work.

During their CNBC appearance yesterday, Lat and Elie noted that while the elite Wall Street firms are leading the charge on compensation, elsewhere “wounded animals were being devoured by predators” (e.g., Bingham devoured by Morgan Lewis), and the industry was undergoing Schumpeterian “creative destruction.” These (relatively) fat bonuses are putting huge pressure on firms below the Simpson-Cravath-Cleary tier to keep up. Certainly not everyone will be able to, and further consolidation is the likely result. As our friend Bruce MacEwen notes in his book A New Taxonomy (affiliate link), while most firms are struggling, there are certain classes of firms that are absolutely thriving, expanding their market share and “putting a great deal of blue water between themselves and others who aspire to join their ranks.”

We’ve seen other signs of the widening chasm between the elite and the rest. A recent press release from NALP concerning the shrinking prevalence of the $160,000 first-year associate base salary noted that “in 2009, about 90% of offices in firms of more than 700 lawyers in Los Angeles and Washington, DC reported a first-year salary of $160,000; in 2014 only about 40% did so.” That’s amazing! A 56% dropoff in the number of firms paying “market” in two of our most important cities. Even more amazing? The widespread deceit by law firms (or someone?) implied by these statistics.

We’re assuming NALP gets its data directly from the firms themselves, essentially all of which are NALP members. (You can confirm the methodology yourself by buying their report right here for a mere $160.00.) Law students and other potential candidates get their salary information — outside the context of working with a headhunter — from a handful of sources, such as Vault and Chambers. We know that the vast majority of large law firms provide some basic compensation information to Vault. At the very least, firms are given the opportunity to revise or correct the information. This is what makes the massive decline of the reported $160,000 starting salary among the 700+ lawyer firms in D.C. and L.A. so interesting. Obviously, that “700+” group is fairly small and readily identifiable. There are only (per the National Law Journal) 54 firms in this category. Of these, only 16 reported something other than $160K as a first-year salary.

So on the one hand, we have NALP’s data asserting that, in 2014, only 40% of this group of firms paid the top rate (this number is predicted to decline to 25% next year) in L.A. and D.C. On the other, the most stringent look at salaries published by Vault (that is, lumping in those few firms who will only confirm they pay “market”), we find that, at a minimum, 71% of firms pay $160K. If we allow just a bit of “realistic” guesswork (e.g., Perkins Coie must pay $160K in L.A., no?), then the probable percentage is closer to 80%.

So what is going on? Is the NALP data just basically flawed? Are many firms being less-than-straight regarding their publicly available compensation? Both could be true, but both can’t be false.

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