Law firm associates scored record pay and bonuses in the last two years, commanding unprecedented leverage during legal recruitment battles.
The good times, however, are nearing an end.
The recruiting war is cooling, with firms largely avoiding extra bonus payouts this year. Murmurs of work slowdowns are replacing junior lawyer hopes of demanding flexible schedules and jumping to the highest bidder.
“The market has taken a complete 180 from last year,” said Katherine Loanzon, managing director at legal headhunting firm Kinney Recruiting.
Talk of a recession is quelling a merger-and-acquisition surge that propelled Big Law’s profitability over the last two years. Special purpose acquisition company, or SPAC, activity—a golden goose for companies and law firms during the pandemic—has come to a halt.
The financial uncertainty is prompting firms to slow the pace of investments in their operations. Such a new reality might be tough to accept for many new associates who have known nothing but boom times.
“They’ve never experienced anything but a robust market,” Atlanta-based legal recruiter Shannan Rahman said.
Return to Normal
Since the start of the pandemic, law firms’ corporate teams have needed hoards of associates to handle rapidly growing workloads.
The country’s 100 largest firms brought on 8,040 associates in 2021, more than double the total a year earlier, according to data provided by Firm Prospects, a law firm and attorney analytics company.
Kirkland & Ellis added the most associates last year, bringing on nearly 450 lateral hires in 2021, according to data compiled by Leopard Solutions. Goodwin Procter made nearly 300 lateral associate hires, while Silicon Valley-based Cooley added nearly 250 associates.
Larger law firms saw expenses skyrocket amid the hiring frenzy, with compensation costs increasing 17.5% in the first half of the year, according to a recent survey by Citi Private Bank’s Law Firm Group.
All the hiring sparked a recruiting war in which firms desperate to add and retain lawyers handed out signing, retention and special bonuses, as well as salary increases.
Firms upped associate salaries in 2021—after keeping them flat for nearly three years—and did so again earlier this year. They increased pay by more than 22% at the most senior end in less than two years.
Law leaders added bonuses aimed at attracting and retaining associate talent. Some senior associates in all took home more than $500,000 a year.
“There was, in certain practices—particularly transactional practices—almost a sense of desperation, like we just need bodies, and we will pay, you know, whatever we need to, to get the bodies,” Rahman said.
The tight labor market also forced law firms to become flexible. They allowed associates to work from home and in locations where firms didn’t have offices.
But the tides have now turned, according to legal recruiters.
“The demand for associates no longer exceeds supply,” said Summer Eberhard, a recruiter at Major Lindsey & Africa. “So it only makes sense that firms are not as eager to hire remote attorneys, and offers are not going to have to be as aggressive.”
Eberhard said she has had to adjust expectations of associates. “I haven’t seen a lot of pushback,” she said. “Associates are seeing firsthand in their firms that work has slowed.”
Some associates who hopped from firm to firm in search of a better deal during the last two years are in “for a rude awakening,” said Jolie Steppe, a legal recruiter at Greene-Levin-Snyder Legal Search Group.
“Clients, especially when I’m looking for an in-house client, if they see too many moves, they do not want to interview that candidate,” Steppe said. “All these junior associates have multiple moves and it’s obvious they were following the money.”
While the hiring pace is now slowing, firms did keep to a steady rate of importing new talent through much of this year, recruiters said.
Several firms have seen summer associate and first-year classes balloon, Rahman said. Many are holding off on hiring laterals because of the influx.
Mid-size and regional firms, whose associate ranks were thinned by poaching from larger competitors during the boom, are still looking to hire, according to Loanzon.
“Last year, a lot of these midsize regional firms were losing associates and they still have a continued need, so this year, that need has rolled over,” she said.
Bill Davis, managing principal at The Davis Group in New York, said he has seen an increase in Big Law candidates willing to hear him out about boutiques and small firms, as well as in-house opportunities.
“Those lawyers not long ago were saying, ‘Are you kidding me? Why would I make a move now? It’s raining money here,’” Davis said.
As law firms lose talent to in-house roles and elsewhere, some positions are no longer being back-filled, Rahman said.
“Law firms are looking at their current bench and seeing if our current bench is being utilized 100%, and if not, let’s make sure they are before we add on more bodies,” she said.
Too Many Hires?
Some firms have realized they may have over-hired in 2021, according to Loanzon. They’re now trying to find ways to keep associates busy.
One Am Law 100 firm has implemented a new allocation system for distributing work to its associates, Loanzon said, while others are pushing the pause button on hiring associates from other firms.
“On the Am Law, Big firm level, there’s been a decreased need for associates—and especially at the junior level,” she said.
There also appears to be a talent gap appearing in the junior ranks at some law firms, Loanzon said.
Junior associates who did summer associateships remotely and started work remotely are discovering their training isn’t on par with peers who worked in hybrid environments, where lawyers show up at an office and work with colleagues in person, she said.
“Especially when attorneys are still training and still early in their career, there’s still some value to that in-person work and showing up at the office and learning from the peers,” Loanzon said.
Rahman said for many of the associates she speaks with, compensation and flexibility are the main impetus for making a change.
“I see a lot of requests for ‘I want to work 100% remote, or I want to work most days remotely,’” she said. “But at the same time, they also want to make more money.”
Rahman added, “This market has supported kind of this environment, where they haven’t had to make the sort of trade off. But I do think at some point that’s going to stop.”