Dear Biglaw Firms, Please Don't Raise Salaries
Managing partners, don't act like lemmings; don't follow Cravath if you can't afford it.
Here’s a frightening fact: two out of the last three major Biglaw pay raises were followed in a year’s time by recessions. Think of law firm salary hikes as a leading economic indicator.
In February 2000, Davis Polk took starting salaries in New York from $105,000 to $125,000. In March 2001, the post-dot-com recession started.
In February 2006, Sullivan & Cromwell took starting salaries from $125,000 to $145,000. The economy kept on chugging for a bit. In January 2007, less than a year later, Simpson Thacher took starting salaries from $145,000 to $160,000. By December 2007, the Great Recession began.
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Biglaw associates, we’re happy for you and your pay raises (and our traffic). Indeed, in our NY to 190 series of articles, we argued in favor of a pay raise that was long overdue. We published the first column in the series on May 5; one month later, on June 6, Cravath raised starting salaries.
That was the right move — for Cravath, and for Cravath’s (true) peer firms. It’s not the right move for everyone.
Good news eventually gets followed by bad. We’re enjoying summer right now, but as they say, winter is coming. Law firms need to be prepared for the inevitable economic downturn that Biglaw pay raises often usher in.
And some industry observers argue that firms aren’t prepared for the next recession. For example, according to law firm consultancy Altman Weil, too many firms have excess capacity and should be conducting layoffs — but aren’t.
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If certain firms need to be cutting headcount to save money, they definitely don’t need to be raising associate salaries. They don’t need to be paying more money for the same lawyer labor. Trying to keep up with the Cravathians if you can’t afford it is just a recipe for disaster. Raising salaries now will just mean more layoffs, more partner defections, and more risk of firm collapse later, when the next recession arrives.
Are you a firm that should be raising salaries, or are you a firm that should be keeping your powder dry? Managing partners, you know your own firms better than we do, obviously. You have the data — information on profits and revenue, billing rates, and utilization rates — that we don’t. Make the best decision for your firm and its people.
Depending on your firm’s position — where it sits in the Biglaw hierarchy, where it operates in the legal market, who your peer firms are and what they have (or haven’t) done — the best decision might be to keep salaries where they are. There’s no point with trying to match Cravath if you don’t play in the same league as Cravath, if you’re not competing for the same clients, matters, and lawyer talent.
Paying on the $180K scale if you’re not in the Cravath tier won’t help you with recruiting anyway. You’ll increase your overhead, but still lose recruits to Cravath-level firms in the end. Cravath and its peers have more prestige, sexier work, and superior exit opportunities, and those factors will serve as the “tiebreakers” if comp is the same.
It might pain you to admit that you’re not in the top tier of Biglaw, but we all need to be honest with ourselves. I’m 5’7″ (on a good day), so I don’t try out for the NBA.
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If you decide not to raise associate pay, will we here at Above the Law mock or shame you for your cheapness? Yes. We have a job to do.
But so do you, managing partners. Don’t let us, a bunch of former practicing lawyers, tell you how to run your practice. Ignore the carping and stay the course. Do what’s right for your law firm and your lawyers — even if they might not like it.
This is so obvious as to not be worth saying, but we’ll say it anyway: a job paying $160,000 a year is better than no job at all.
Earlier: Breaking: NY To $180K!!! Cravath 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].
