Mo Money, Mo Problems

Biglaw’s latest salary hikes are a big problem for associates

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The salary wars are on again. The first domino fell last week when Milbank raised its first-year starting salary in New York to $190,000. The major players in the New York market started following suit shortly thereafter. All expectations are that most New York firms will have made a move in the next few weeks, in time for on-campus recruiting of next year’s batch of first-year associates. And as goes New York, so goes the rest of the U.S. marketplace. First-year salaries in all 50 states will likely creep up over the coming weeks and months. Speaking as an advocate for associates everywhere, this is likely a disaster in the making.

The Underbelly of Big Salaries

The victims of the latest salary wars will be associates. How is that possible? Isn’t giving associates more money a good thing? Yes and no. If you’re an associate whose only goal is to make bank for a few years and cash out, these raises are great news. However, if you’re hoping to build your practice over time, make partner, and have some semblance of a personal life, these raises may turn out to be your worst nightmare.

As I’ve written about over the past months, law firms today outside of the Am Law 25 are facing unique and daunting challenges. Alternative legal service providers are taking a chunk out of a marketplace we used to have to ourselves. The vast majority of industry growth is being gobbled up by those already at the top of the market. Firm clients, and even firms themselves, are doubting that lawyers are up to the task of keeping pace with the changing demands of the industry. Demand remains stagnant as more clients are dragging work in-house. It’s tough everywhere outside the top of the market, and it appears it’s only going to get tougher.

Milbank, Cravath, Kirkland, and the other megawatt law firms can pretty easily afford to offer salary bumps. They’re the ones seeing major growth, and the ones who aren’t feeling major client pressure to keep their rates down. It makes all the sense in the world for them to throw more money at recruiting, because they have the money to do it. Yet it’s a foregone conclusion that the rest of the legal market, which isn’t seeing those kinds of gains, is going to follow suit shortly. Rather than ask whether they should, firms will double down on our existing, dated, broken legal model and raise their incoming salaries.

When your revenue is flat, and you increase your costs, one of three things has to happen. Either (1) profits go down, ticking off your partnership, (2) hourly rates go up, angering clients (at least one in-house attorney client is already venting their frustration at these new raises, calling them “astounding” in their tone-deafness), or (3) the demands on associates to earn those new salaries go up, burning out the incoming classes.

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Every single one of these results is bad news for a law firm, and since bad news tends to run downhill, it’ll be bad news for the associates who are supposedly benefiting from these salary raises. If the partnership gets grumpy, the risk of defections increases, while the firm’s ability to attract new books of business laterally decreases. If the clients get angry, they’re at risk of moving their business over to a firm with a more value-oriented approach, or clawing it back in-house. Most firms don’t want to see either of these scenarios happen, so they’ll probably opt for door number three: demand more of their incoming associates in order to justify their new salaries.

Biglaw Meets Karoshi

The fact is, we can’t afford to ask more of our associates. Or rather, our associates can’t afford to have us ask more of them. The conversation on whether the legal market has healthy expectations is over. It doesn’t. Our market, as it currently exists, expects long hours of high performance. Many firms expect major sacrifices of their associates’ personal lives. We already ask too much of them. Asking more is a bad, bad idea.

This subject can literally be a life-and-death issue. Over in Japan, young employees have overworked themselves to death so often that there’s a word for it: karoshi. Otherwise healthy kids in their 20s and 30s are dropping dead from strokes and heart attacks due to intense, unceasing work expectations. It isn’t limited to Japan, either. Speaking personally, I nearly died back in 2013 from a rare form of kidney disease, induced in part by the insane hours I was keeping. It shouldn’t take a brush with the hereafter to make us realize that the course we’re on, as an industry, is untenable.

There’s also the rarely discussed problem of what to do with midlevel and senior associates. The big players in New York tend to boost all associate salaries in proportion to one another, but the rest of the market often can’t afford to do so. Many firms just boost their first-year associate salaries to keep up the perception they’re paying top dollar for talent, but scale back when it comes to bumping their more established associates’ salaries. The end result is salary compression, where a senior associate may be more profitable and capable than a first-year, but not making materially more. The senior associates get justifiably angered, and the junior associates look ahead a few years and only see a future of more responsibility for modest compensation increases. When the sugar high of this national salary bump wears off, the vast majority of the recipients of those raises end up less happy, not more.

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Being a first-year associate isn’t easy. I remember how scary it is, how hard of an adjustment it is to make. You’re working longer hours than you ever have, you’re learning how to handle office politics, and you’re realizing how thoroughly law school failed to train you for actual practice. To all the law graduates and first-years reading this, please know I’m with you. Being told a salary raise is a bad idea may feel callous, but it comes from a place of compassion. I’m not some old coot in a rocking chair raging about how kids these days have it too easy. To the contrary. I’m saying this because I want associates to be functional, happy, healthy human beings — not profit-generators to be replaced when they inevitably wear out.

Full Bank Account, Empty Soul

Too often, law firms forget they have tools in their toolkit beyond raising salaries. Lots of firms pay their associates well. Precious few train them up, give them early chances at advanced practice, and treat them as valued human beings. Associates cannot live on direct deposits alone. Let’s try feeding their souls in addition to their bank accounts and see how that goes for a while.

The results might just surprise everyone.


James Goodnow

James Goodnow is an attorneycommentator, and Above the Law columnist. He is a graduate of Harvard Law School and is the managing partner of an NLJ 250 law firm. He is the co-author of Motivating Millennials, which hit number one on Amazon in the business management category. You can connect with James on Twitter (@JamesGoodnow) or by emailing him at James@JamesGoodnow.com.


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