Associate Salaries

160, 170, 185, 210, 230, 250….

Today is January 17, so you should have received your first paycheck for 2013 by now. Was that paycheck smaller than you expected?

Well, it wasn’t your imagination. Due to the non-extension of the payroll tax holiday, if you’re earning the same salary this year as last year, your take-home pay should now be smaller.

But what if you’re an associate at a major law firm with a lockstep compensation system? You should see a seniority-based raise reflected in your first paycheck of the year, correct?

Earlier this week, associates at two leading law firms flipped out when their paychecks weren’t what they expected….

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A few months ago, we wrote a story about the $160K-Plus Club: those law firms that pay their first-year associates more than $160,000 a year, the going rate within Biglaw. Earlier this week, we covered which cities give young lawyers the biggest bang for their buck — i.e., cities where the buying power of the median salary for that city is the greatest.

Let’s mash up these two stories. Today we bring you news of a law firm that (1) pays a starting salary of more than $160,000 and (2) is based in a city that’s in the top ten for buying power. Associates at this firm are — by our calculations, based on the NALP Buying Power Index — living as well as someone earning $414,000 in New York City. That’s a staggering sum for a first-year associate.

So which firm are we talking about? And are they hiring?

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Back in 2011, the National Association for Law Placement (NALP) produced an extremely useful chart for people trying to figure out where to start their Biglaw careers. The chart, which tracks buying power based on starting salaries for associates, is a great way to find out where you’ll get the most bang for your buck if you land a lucrative Biglaw gig.

NALP’s Buying Power Index continues to use New York City ($160,000) as the baseline. It takes the median starting salary for the class of 2011 and the cost of living index for NYC and sets that figure at 1.00. Cities with a better purchasing power than NYC have a value greater than 1.00. In all, 76 cities have been ranked.

When we first wrote about this, associates in New York City were crestfallen when they found out that their city was number 42 on the list — they realized they were essentially throwing their money down the drain. This year, NYC has tumbled even further down the list.

How badly are they getting screwed, and where can you go if you want greater purchasing power?

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It’s the last day of December, so it’s a good time to look back on the year that was. We’ll do what we’ve done for the past three years (wrap-up posts from 2009, 2010, and 2011 can be found here, here, and here) and identify the ten biggest stories of the past year as decided by you, our readers. With the help of Google Analytics, we’ve compiled a list of our top ten posts for 2012, based on traffic (as represented by pageviews).

By the way, for the third year in a row, the most popular category page on Above the Law was Law Schools. People have now been intensely focused on the declining value proposition of going to law school for as long as it takes to earn a Juris Doctor degree. Isn’t it time that we graduate from the current educational model?

The second and third most-popular categories on ATL in 2012 were Biglaw and Bonuses. Although this year brought us the largest law firm failure ever, nearly all other firms indiscriminately doled out offers to summer associates, and bonus season looked better for the first time in years. While the legal profession is still in transition, things are certainly looking up, and through the highs and the lows, we’ve been there to cover it all.

So what were the ten most popular individual posts at Above the Law in 2012? Let’s find out….

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We’re tempted to do what we proposed last year regarding Sidley Austin bonuses, by simply writing: “Sidley bonuses are out. The scale is not transparent, so some people may be happy with their bonuses and others may be unhappy. Here is an open thread for you to discuss. Thank you.”

That would at least spare us from some of the criticism we’ve received for our coverage of the Sidley bonuses in recent years. In 2010, we initially wrote a very positive post, which we got criticized for by people who saw it as too positive. In 2011, we went in the other direction, reporting that Sidley’s bonuses drew yawns from associates — an assessment that drew flak for us from happy campers at Sidley (and there are many happy campers at the firm; it enjoys an A- rating from ATL readers who work there).

So we realize that covering the sensitive subject of Sidley bonuses is a bit like trying to reach a budget deal: you can’t make everyone happy, just varying degrees of unhappy. But we’ll give it our best shot….

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Last year, I complained that the complicated compensation system at Vinson & Elkins was giving me a headache. What’s wrong with a Cravath-style system of lockstep salaries and bonuses? Or a Kirkland- or Latham-style system of lockstep salaries and individualized bonuses? Is it really necessary, for purposes of paying associates, to utilize a system involving deferred compensation?

Luckily for me and my limited quantitative-reasoning ability, V&E has decided to streamline their system. Let’s learn about what they’re doing, which they revealed in the course of announcing their bonuses.

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Lat here. Earlier this month, I wondered: could the bumper crop of new partners at Cravath bode well for bonuses? Although firms like Cravath generally make partnership decisions with a focus on the longer term, as opposed to based on short-term financial performance, a class of five partners is one of the largest Cravath has had in years. It certainly seems to reflect a good degree of confidence about the firm’s future.

Now we have our answer as to the size of Cravath bonuses. The firm just announced its year-end bonuses for 2012, and they’re not simply a cut-and-paste of last year’s numbers. This year’s bonuses are more generous than last year’s, which is great news (at least for associates trying to pay off their law school loans; partners might be less enthused).

Sit up and take notes, since the Cravath bonus scale sets the bar for most other major law firms….

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Last week I discussed the associate bonus process from your typical partner’s perspective. I want to talk a bit more about ways firms can take advantage of the glut of prospective associates out there, while increasing the odds of finding those rare jewels who will make partner — with each associate making less, but getting a better lifestyle (and a shot at a Biglaw career) in the bargain.

Some caveats. First, the ideas below are not intended for the Simpsons — this Simpson, not those Simpsons — of the world. They will continue to attract the very best, and should continue their current structure. Why? Because the Cravath model that the elite firms instituted makes for great partners and strong law firms. The problem is that almost every Biglaw firm adopted the Cravath model, and not all of them should have. Most firms do not have the institutional client base of the elite firms, and therefore don’t need the tremendous fixed costs and inflexibility with respect to associates that the Cravath model brings. As firms expand, contract, or just struggle to stay afloat post-Biglaw Breakdown, it seems like a great time to try some new approaches to talent structures and compensation. There is nothing wrong with some experimentation, as long as the protocols are transparent, and management is prepared to cut bait quickly if things are not working out.

Now over the years we have seen firms experiment with their junior associate hiring models. Most of these programs involved trying to turn junior associates into some form of quasi-apprentices. None seem to have taken root. And in my mind there is no sense in implementing a drastic, global overhaul of your associate model, before trying some more limited changes on the practice group level.

Here is what I would try….

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As we recently mentioned, Biglaw is not all about the benjamins. There is so much more to the practice of law than the monetary rewards. Focus on doing the best work you can for your clients and your colleagues, and the money will take care of itself (well, at least most of the time).

Of course, it’s much easier to take a relaxed attitude towards money if you have a good amount of it. It’s easy for well-paid partners to tell young associates not to worry about money, when the partners enjoy seven-figure paychecks while the associates struggle under six-figure student loans.

If you’re a young lawyer dealing with educational debt, you know that every extra dollar counts. Every dollar earned means you’re one buck closer to liberation from loans.

Which leads us to today’s question: which law firms pay the largest starting salaries to their associates?

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We haven’t had a good New York to 190 post in a while, and maybe there’s a reason for that. While many associates (and partners) feel that they’re long overdue for a raise, starting salaries have grown stagnant in New York — and across the country, for that matter. Remember back in 2007 when we first reported that Simpson Thacher raised incoming associates’ base salaries to $160,000? That was five years ago, and these days, you’ll be lucky if you’re making what you would’ve been taking home before that $15K salary bump.

While that $160K sweet spot for first-years is still the norm in many large markets, it’s no longer as widespread as it once was. In fact, that figure represents only 46 percent of first-year salaries in firms with more than 700 lawyers — and that percentage has been on a steady decline since 2009, when layoffs and terror ran rampant in Biglaw.

Sorry about that tiny pink paycheck of yours….

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