A deluge of corporate work without enough associates to staff it has sent cash flush Big Law hunting for hires in smaller markets, a dynamic that could threaten regional law firms in the long run.
The nation’s largest law firms have thrived in spite of Covid-19, especially corporate practices, like M&A, where demand surged 7.8% in the first quarter of 2021 over the same period last year, according to a recently released report by Thomson Reuters. All that work has made this year’s hiring market for corporate associates the hottest in recent memory.
Since the beginning of the year through mid-May, there have been 660 lateral corporate associate hires among the top 100 law firms in the country, according to data from Leopard Solutions. This equals nearly all the 662 corporate associate hires made by the same group of law firms during the whole of 2020.
Though regional firms haven’t yet moved to increase compensation and bonuses for their associates en masse, the risk of not doing it and losing top talent to Big Law is a very real threat, especially as the largest firms get more flexible about where their associates work.
“It’s a real problem for smaller markets where these big firms are coming in and kind of upending the business models,” said Dan Binstock, a partner at Washington-based legal search firm Garrison & Sisson.
Associates’ Pay Day
Big Law has proved so far in 2021 that it’s willing to dole out the cash to recruit and retain junior talent, as evidenced by the up to $64,000 many firms are offering associates in “special bonuses” this year.
It’s a talent market that’s given well-qualified corporate associates a huge amount of leverage when they sign on with a new Big Law employer.
Corporate, capital markets, and M&A associates “can pretty much go wherever they want on whatever terms they want,” said San Francisco-based Major Lindsey & Africa recruiter Kate Reder Sheikh.
Those terms increasingly include hefty bonuses just to join up. “I have not seen a [signing] bonus lower than $15,000 and I have seen as high as $75,000,” Sheikh said.
“In some cases, people are asking for specific bonuses,” she added. “For example, the amount that would extinguish their student loan debt.”
Big firms are also departing from their salary scales for certain candidates, offering a higher base salary than their associate class year would normally receive through either bumping them up a year or negotiating different salary levels, according to Sheikh.
But Big Law firms are no longer just giving massive salaries and bonuses in major markets like New York, Chicago, or San Francisco.
Jesse Hyde, a Chicago-based director at legal recruitment group Lateral Link, cited Milwaukee as one city where these firms have offered New York-level special bonuses, which he said has not previously been the norm.
In Denver, some Am Law 100 firms will now pay full New York scale in both salary and bonuses, and firms have raised associate salaries in places like Minneapolis, Atlanta, and Ohio to lure talent, Hyde said.
Big Law firms in major markets are going into smaller markets to pick off associates, said Binstock, both throwing more money at them than the going local market rates, and allowing them to work from home.
“If someone is living in Nashville, Tennessee, and getting paid on a New York salary, it’s certainly very hard to turn that down,” he said.
Damned Either Way
After the pandemic shuttered offices and forced lawyers to work from home, the American Bar Association issued an opinion in late December that condoned allowing lawyers to physically work in a state where they aren’t barred or licensed so long as they only practice the law of the state where they are admitted.
The advisory opinion was heralded as a “major step” forward in providing lawyers more flexibility to work from home, and some states that didn’t allow lawyers such leeway before have already followed the ABA’s lead.
But Binstock said one unintended consequence could be the use of changing standards as a recruitment weapon, as they allow firms to hire more flexibly in new geographic markets.
This could help fuel the mobility of associates, even those outside major cities, upward to bigger and richer firms.
“A big chunk of the movement is up market — associates moving up the ladder,” Sheikh said, noting that she has seen associates at firms outside the Am Law 200 head to top 10 Am Law firms.
“I’m not seeing too many lateral moves,” she said. “Only those that are largely a step up.”
Some Big Law firms have been actively hiring remote lawyers even in places where they don’t have an office, a major shift from their previous approach.
Goodwin Procter is hiring associates to work remotely on a permanent basis and has hired in Dallas, Houston, Miami, Hartford, Conn., Richmond, Va., and Charlotte, N.C. Binstock said that he is working with Washington-based firms that are conducting nation-wide searches for talent.
Though firms in regional markets haven’t yet increased associate compensation across the board in response to this new threat, Binstock said it is something they’re considering as the delta between bigger firms and smaller ones could continue to grow.
But there are dangers for smaller firms attempting to match Big Law’s largesse when it comes to salary and bonuses.
“They’re damned if they do or damned if they don’t,” Binstock said. “If they don’t raise, they risk losing, but if they raise and start paying above a comfortable level, it’s going to impact their profitability and then they risk losing partners.”