NY To $190K: 5 Arguments In Favor Of A Biglaw Pay Hike

In recent weeks and even days, we’ve received reports of meetings happening throughout Biglaw raising the subject of an associate pay raise. And it shouldn’t be shocking — more than nine years have passed since Simpson Thacher brought us the $160K pay scale.

Interestingly enough, partners with say on this subject seem open to the idea. I had breakfast a few weeks ago with a Biglaw hiring partner who acknowledged that yes, it’s probably about time for a new salary scale. I spoke by phone the other day with a managing partner who expressed a similar willingness to consider the issue. These days, the response of Biglaw management to the idea of a pay hike is “tell us more and make the case” — as opposed to what you would have gotten during the Great Recession and early recovery, “NFW — just be grateful you have a job.”

In light of the building buzz, we’re launching a new series called “NY to 190”. The series title comes from the old ATL comments meme; we don’t rule out the possibility of a smaller or larger move — e.g., NY to 180 or NY to 200.

Today’s post provides five reasons to support a Biglaw pay hike, which associates can provide to partners if asked why an increase to base salaries is justified. Future installments of “NY to 190” will speculate about when the change might happen and which firm will lead the charge. If you have ideas for other articles in the series, please email us (subject line: “NY to 190”) or text us (646-820-8477).

1. Inflation has been low but not non-existent.

To quote Destiny’s Child, “Bills bills bills.” We’ve been lucky enough to live in a fairly low-inflation environment over the past few years, but “low” inflation is not the same as “zero” inflation. According to the CPI Inflation Calculator, to enjoy the buying power of $160,000 in 2007, you would need $183,759.78 in 2016 dollars (basically, a 15 percent increase).

The calculator, of course, is based on nationwide data. The cost of living in Biglaw hubs like New York and San Francisco has grown much faster. Let’s take New York. If you look at this chart, you’ll see that the average rent for a one-bedroom apartment here was $2,120 in July 2009, the earliest month listed. For the most recent month listed, February 2016, the figure was $3,152 — a 49 percent increase.

2. Student loan burdens have risen, along with law school tuition.

The average American, unlike the average Biglaw associate, doesn’t have to worry about servicing a six-figure debt load. The typical newly minted J.D. leaves law school with more than $140,000 in student debt. For many law school graduates, their monthly debt service costs as much as a second apartment (and Biglaw associates generally aren’t eligible for the various debt relief programs available to lower-earning classmates or peers in public service).

Sadly, this shouldn’t be surprising, given how law school tuition has risen astronomically over the decades and significantly since 2007. The average law school tuition in 2014-2015 was $37,725 for public schools (non-resident) and $43,338 for private schools (figures that don’t include living expenses). In the 2005-2006 academic year, the last year in law school for someone who would have been a first-year associate when STB raised salaries in January 2007, the average law school tuition was $28,988 for public schools and $35,431 for private schools. These represent increases of 30 percent (public) and 22 percent (private), respectively. (Law schools might defend themselves by citing the growing prevalence of discounting and scholarships, but this claim is tough to evaluate because we don’t have reliable data on the “real” tuition paid by students at all the different law schools).

So during the 2007 to 2016 period, law school tuition grew much faster than overall inflation (which has pretty much always been the case). Older Biglaw partners might need reminding that the days of selling a used car to pay for law school are ancient history.

3. Billing rates continue to climb.

In response to some observations about base salaries I made in a story last year about Williams & Connolly moving to a $200,000 starting salary, a source shared these observations:

I’d love to see a chart showing the average fee increase charged to clients in percentage terms for associates’ time since 2007. Your stories point to inflation and buying power compared to 2007, but the far more important and powerful point is that the big firms have been raising the rates they charge clients for associates’ time 3-5% a year for seven years now. Sure there are discounts and some firms can’t raise rates like others, but with compounding, the top 20 firms must be billing clients about 150% for associates time [compared to] 2007 but have passed none of that on to associates. THAT is the argument that it’s time for a raise. If I am a client, I would be thinking, why are you raising my rates every year when your labor cost has remained the same?

4. Partner profits continue to climb.

“Why are you raising my rates every year when your labor cost has remained the same?” Because… we’d like to make more money?

Last week we wrote about the latest Am Law 100 rankings. Sure, revenue and profit growth in Biglaw are slowing — but growth is still growth, meaning that revenue per lawyer and profit per partner hit pretty much record levels in 2015.

In fairness to the partners, I don’t think this is a case of greed. Most of the Biglaw partners I know deeply appreciate the hard work of their associates and want to see them fairly compensated. And in further defense of the partners, they’ve been paying very nice bonuses in the past few years (moving Biglaw to more of a Wall Street-style approach to compensation, where even junior folks share in both the upside and downside of the enterprise).

I think it’s less a matter of greed and more an issue of inertia. Raising associate base salaries is the right thing to do, but there’s no particular pressure on firms to move right now. It’s not like the move to $125,000, triggered by firms losing talent to startups during the first dot-com boom, and it’s not like the move to $160,000, prompted by firms losing talent to the finance world. Top firms can still get the recruits they want with the current pay scale (partly because, well, their peers are generally on that same pay scale — but see the growing membership of the $160K Plus Club).

There’s a little bit of a collective action issue too. It reminds me of last year’s bonus season, which started a bit late: no major player had an issue with paying out at high levels, but nobody wanted to be the first mover and risk being one-upped (or “Davis Polked”).

5. Markets outside New York have seen pay raises.

This final point is admittedly NYC-centric — but New York historically has been where most Biglaw pay raises have started, so it does have broader implications. As we have chronicled in Nationwide Pay Raise Watch, pay raises have been spreading to smaller legal markets around the country, including Philadelphia, Seattle, Portland, Minneapolis, Delaware (Wilmington), and Sacramento. And pay raises are even hitting foreign legal markets, such as London.

As we’ve seen with firms moving to “unified” bonus scales, there’s an argument that in this increasingly interconnected age, geography should be less relevant to compensation. But as long as we still have some gap between New York and other legal markets, whether to reflect the premium rates charged by NYC lawyers or the higher cost of living here, it’s worth noting that this gap gets smaller and smaller by the week.

So there you have it: five arguments in favor of increasing Biglaw base salaries, starting in New York and spreading throughout the country. If you have other arguments, or additional data in support of the arguments already raised, please email us or text us (646-820-8477). If we all work together, maybe we can make this happen before the inauguration of our next president (whoever he or she might be).

(More Than Nine Years) Earlier: Breaking: Simpson Thacher Raises Associate Base Salaries!!!

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David Lat is the founder and managing editor of Above the Law and the author of Supreme Ambitions: A Novel. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at [email protected].