Associate Salaries

Today everyone’s talking tech, thanks to Facebook’s upcoming IPO. In light of how Silicon Valley is dominating the news cycle, it seems fitting to discuss the recent bonus and salary news from Wilson Sonsini — one of SV’s top firms, and counsel over the years to many startup companies turned tech giants.

(But not Facebook, at least with respect to the IPO. That’s being handled by Fenwick & West and Simpson Thacher.)

So what kind of bonuses did WSGR just announce? Let’s find out….

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Tomorrow, associates at Goodwin Procter will receive individualized news of their bonuses. You may recall that last month, when ATL’s new director of research, Brian Dalton, compiled a list of Biglaw’s ten most generous firms — i.e., the ten firms that pay the best bonuses, when measured against their profits per partner — Goodwin did good, winning fourth place. (The firm fares well in rankings; last month, it made Crain’s list of best places to work in New York.)

Will this year’s bonuses preserve Goodwin’s good standing? Let’s find out. Although the individual amounts are being communicated tomorrow, the firm has outlined its overall approach in a memo….

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This morning’s news that Boies Schiller is making a mockery of the Cravath bonus scale simply reinforces the prevailing view (pace David Lat) around here that the 2011 Cravath bonus scale is fundamentally unfair.

Agreeing on this point is former Kirkland & Ellis partner Steven Harper (whose apparent pro-associate stance may make him a sort of Biglaw apostate). As Harper points out, “equity partner profit trees have resumed their growth to the sky. As the economy struggled, Cravath’s average partner profits increased to $2.7 million in 2009 and to $3.17 million in 2010 … That’s not ‘treading water.’ It’s returning to 2007 profit levels — the height of ‘amazing’ boom years that most observers had declared gone forever. Watch for 2011 profits to be even higher.”

And yet associate bonuses remain stagnant at 2009 levels. Furthermore, as ATL commenter “The Cravath Cut” is so fond of noting, when viewed as a percentage of profits, bonuses appear especially measly, at least from the associate p.o.v. (The current $7,500 market rate for first-years is just 0.23% of Cravath’s profits per partner. Back in 2007, first-year bonuses equalled 1.36%.) Despite these numbers, if history has taught us anything, it is that you can kill anyone Biglaw’s rank and file will follow Cravath’s lead.

Cravath is among the most profitable firms in the world. We thought it would be interesting to see what the implications of matching Cravath are for those firms with much lower profit margins. Which firms’ partners willingly take the biggest hit by keeping up? Are these firms arguably more “generous”? After the jump, check out those firms that pay the largest percentage of PPP in bonuses.

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Is $160,000 a 'garbage' salary?

There’s an interesting post up on Constitutional Daily by The Philadelphia Lawyer. It’s a repack from a 2007 article arguing that salaries for first-year associates should go up to $190,000 a year.

And he’s right.

I know, I know — most Americans are still feeling the effects of a terrible economy. Occupy Wall Street is about to take pitchforks to those who are well-off in this country. Yada, yada, we’ll get back to the very sad story of America momentarily.

But you know who has done well over the last five years or so? Law firms. Especially Biglaw firms. Especially partners at Biglaw firms. Just look at the Am Law reports on profits per partner and revenue per lawyer. Firms are making money, more than they were in 2007.

Yet the associate salary scale hasn’t seen a raise for almost five years. And bonuses are down compared to 2007. Is it time for firms to start sharing the wealth?

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The National Association for Law Placement (NALP) has produced an extremely useful chart for people trying to figure out where to start their Biglaw careers. They’ve listed the cities that give you the most bang for your buck if you land a high paying Biglaw job.

And boy, are New York City associates going to feel stupid.

The NALP “buying power index” sets New York as the baseline. It takes the median starting salary for the class of 2010 and the NYC cost of living index and sets that figure at 1.00. Cities with a better purchasing power than NYC have a value greater than 1.00.

New York ranks #42.

Most of the high-ranking cities also have the benefit of warmth….

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In case you haven’t noticed, things have been quiet on the law firm front. And that shouldn’t come as a surprise: it’s August.

Summer associate programs are largely over (although we still want to hear about fun events and offer rates). Many associates and partners are taking vacation (especially if they have children they want to spend time with before school starts again).

On the litigation side, courts are slow because many judges are away. On the corporate side, some deals have been put on hold due to the gyrating stock market and economic uncertainty. We seem to be turning into Europe, where a good chunk of the population takes vacation for a good chunk of August.

But we still have pockets of law firm news to report, here and there. Today’s dispatch comes from Schiff Hardin, which earlier this month announced an associate pay raise….

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Paul Clement and John Boehner: now out of King & Spalding's hair.

Some people, including crisis communications experts, think that King & Spalding should just shut up already about the DOMA debacle. The firm agreed to represent the House of Representatives in defending the controversial Defense of Marriage Act, and then almost immediately turned around and withdrew from the representation. This prompted the departure from the firm of star appellate litigator Paul Clement, former Solicitor General of the United States, who took the DOMA matter over to his new firm, Bancroft PLLC.

The decision to drop DOMA defense also led to the defections of King & Spalding clients, like the NRA and the state of Virginia. It generated criticism of the firm from diverse quarters — everyone from Ken Cuccinelli to the New York Times editorial board. [FN1]

Despite the advice of the communications experts (with which I personally agree), King & Spalding continues to discuss the DOMA debacle. The firm is starting to sound like a therapy patient that won’t relinquish the couch, and just wants to yap and yap and yap. Are you listening?

Let’s look at the latest revelations — and also some compensation news out of K&S….

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DLA Piper has released some information about its associate compensation and bonus payouts, and some associates who work for the firm are unhappy. Why? I don’t really know. I don’t know why they thought that working for the largest firm in the world would be a good thing when it came time to pay out bonuses.

Attempts to economize on associate salaries are not new at DLA Piper. The firm has been at the cutting edge (pun intended) of reduced associate base salaries, deferrals of incoming associates, and various other methods for keeping the cost of associates down. It’s just how they roll.

It should surprise no one that DLA associates are complaining about the firm’s bonus plan. In fact, I’m not even sure it’s news that the firm seems to be low-balling associates. If anything, the news hook is that there are still associates at DLA Piper who are surprised by sub-market comp….

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We recently reported on Wilson Sonsini restoring associate base salaries to pre-recession levels. Wilson Sonsini associates in five major offices — New York, Palo Alto, San Diego, San Francisco, and Washington, D.C. — are now paid on what might be called the New York market scale or the $160K scale (a scale I’ve committed to memory: 160/170/185/210/230/265).

In our story, we quoted a WSGR associate who viewed the firm’s raise as a response to salary hikes by two Silicon Valley peer firms, Cooley and Gunderson Dettmer. At the time of our story, however, Cooley and Gunderson had not raised SV associate salaries to NYC market levels.

UPDATE: To be precise, Cooley had announced a raise at the time of the WSGR memo, but the raise had not yet taken effect. Gunderson did not announce until yesterday.

Let’s learn more….

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Back in 2009, when killing lockstep was all the rage, a number of large law firms announced that they would be moving to some form of a merit-based compensation system. Now that we’re a few years into those systems, how many firms have stuck with the plan? And which systems do associates prefer?

Of the 86 distinct Biglaw firms at which survey respondents work, 63% of the firms pay base salaries on a lockstep system, and the remaining 37% of firms use a merit-based system or hybrid-lockstep system for paying base salaries. The vast majority of respondents, 70%, say they prefer the lockstep model for base salaries because of its transparency and predictability.

For year-end bonuses, 70% of the firms utilize a merit-based or hybrid-lockstep system, while 30% have a lockstep system based either on class year or billable hours. According to 62% of respondents, the most preferred type of year-end bonus allocation system is a merit-based or hybrid-lockstep system.

After the jump, find out how various combinations of compensation systems measure up against market.

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