The Big Law salary scale no longer starts below $200,000—just one change from an extraordinary period of competition for young lawyers that is being driven by relentless work demands.
Davis Polk ratcheted up starting salaries to $202,500 on Friday, a 6.5% raise for first-year associates. The increase keeps salaries roughly in-line with inflation since the last time Big Law firms raised them in 2018.
“This is the market speaking,” said Kay Hoppe, a veteran legal recruiter based in Chicago. “Law firms are desperate for help. And they are desperate to hold onto what they have.”
Some associates and industry sources have downplayed the move since it comes three years after the last industry-wide salary raise and just months after firms doled out much larger payments in the form of bonuses. Those bonuses have tallied up to $164,000 per senior associate this year alone.
But there are also other lasting changes expected from a post-pandemic period that has, even if only for the moment, shifted bargaining power to associates.
At most firms, associates who proved their mettle as couch-billers will be allowed to work remotely more often. Salaries are likely to rise in second-tier markets that firms from bigger cities have entered to bolster their workforces. There is an outstanding question about how Big Law firms will walk themselves back from special bonuses they have doled out the past two years.
And for those associates who decided to leave the Big Law workforce, the decision will likely prove permanent.
“It’s very hard for somebody to get back in, which is why, when I speak with associates who are burned out and thinking of quitting, I beg them not to,” said Michelle Fivel, a partner at law firm recruiting company Major, Lindsey & Africa. “Once they are off the grid it is very, very difficult to come back.”
Big Law firms turned in one of the strongest financial performances in recent memory last year, driven by an abundance of work required to help companies issue record levels of debt, work through bankruptcies caused by pandemic-related closures, and help clients manage an ever-shifting employment law landscape.
The work has not let up through six months this year.
Corporate mergers and acquisitions remain elevated. And the level of investment grade debt issued through the end of May was the highest through that point in any year since 2010, with the exception of last year, according to data compiled by Bloomberg.
The high levels of work in 2020 led to an unprecedented round of bonuses that continued this year. Law firms, again led by Davis Polk, doled out bonuses in the spring with another round promised this fall—in addition to the customary year-end bonuses.
The special bonuses may have failed to keep associates from moving to rival firms. Firms in hiring mode have been matching those bonuses and some have been adding supplementary signing bonuses. It is all part of a tight labor market that isn’t expected to last forever.
But even if the work tapers off, there is an open question whether associates will expect an extra round of bonuses. Or if an outperforming law firm will use them to lure talent down the line.
Raising salaries may actually help answer that question. It could be a way for Big Law firms to back away from those bonuses next year. The extra base pay could be pointed to as a meaningful increase while reminding associates that the bonuses from the previous two years were always considered “special.”
“Those bonus expectations are very sticky,” said Janet Stanton, a partner at law firm consultancy Adam Smith Esq. “It would be reasonable for firms to be able to say to their workforce, ‘If there is less revenue coming in then there will be less compensation.’ How that’s received is another question.”
Amid the tight labor market, law firms are also trying to lure associates back to the office. Many junior lawyers have voiced their preference to work from home more often, and firms have largely obliged. They are rolling out flexible work policies that don’t envision a full-time return to commuting to offices.
That attitude has also opened the door to hiring associates outside of the major markets where they have invested in physical space. That trend is likely to continue, with further salary implications.
“That is what impacts salary in the secondary markets,” Fivel said. “If an associate in the secondary market can be staffed on the same exact deals in the secondary market as a New York associate can, it’s harder for the firms to justify paying them less.”
There is one other, less-consequential change that could result from Davis Polk’s salary move this week: rebranding the so-called “Cravath scale.”