Putting Associate Salaries Into Perspective
By Rex S. Heinke
Rex S. Heinke is president of the Association.
This President's Page was originally published in the July/August 2000 issue of Los Angeles Lawyer.
In May, the Association hosted a panel discussion on the effects of the recent substantial increases in associate attorney salaries, predominantly at large law firms, on the practice of law. The distinguished panelists were Wanda K. Denson-Low, general counsel of Hughes Space and Communications Co.; Martha B. Jordan, managing partner of the Los Angeles office of Latham & Watkins, one of the nation's largest law firms; Michael P. Judge, chief public defender for Los Angeles County; Blane R. Prescott, a principal of Altman Weil, Inc., a legal consulting firm; Patricia M. Schnegg, outgoing president of the Association and a partner in Knapp, Marsh, Jones & Doran, a small downtown Los Angeles law firm; and Michael Waldorf of Waldorf Associates, Inc., a legal search firm. Their diverse perspectives and the ensuing discussion can help to clarify our thinking on this important issue.
Starting salaries at many large law firms are now approximately $125,000, not including bonuses and other compensation, which can boost total compensation to as much as $150,000. In some quarters, the large salary increases have resulted in claims that these levels are "outrageous" and that new lawyers cannot be "worth" such sums. Others blame greedy associates, although these critics often fail to realize that many new lawyers accumulate law school debts of $100,000 or more, as the cost of a legal education approaches $50,000 per year at some leading institutions.
Market Forces at Work
What is going on here? In substantial measure, it is those old market forces of supply and demand. Our economy is booming. Labor is in short supply in all sectors of the economy, including the legal profession. Law firms are not raising salaries to be charitable or generous. They are doing so because they must if they are to attract the caliber of people they need to serve their clients and thereby remain in a competitive position.
Some historical perspective on salaries is also helpful. Similar hikes have rocked the legal world before. For example, in the late 1960s, Cravath, Swaine & Moore in New York doubled starting associate salaries in order to hire a sufficient number of the new lawyers the firm needed. Similar to the recent salary increases that started in Silicon Valley, Cravath's actions soon swept across the nation, through all the larger law firms, and rippled through the rest of the legal profession. The recent increases thus are not a unique event.
The flip side of this trend is that a poorly performing economy can have the opposite effect. Following the boom times for both the economy and the legal profession in the 1980s, the early 1990s were a difficult era. Many lawyers saw their incomes decrease, sometimes dramatically. Although we cannot control the economy, we need to consider what these economic forces are doing to the practice of law and what our response to them should be.
Implications for the Future
While associates rejoice about their new, hefty salary increases, they should also pause to realize that everything has a price. Their salary increases have to be paid for in some manner. One way is with higher billable-hour requirements. As a practical matter, even if not always expressly acknowledged, billable-hour requirements had already reached minimums of 2,000 in large firms even before the recent salary increases. They are sure to increase even further.
This cannot possibly improve the quality of life for new lawyers. After counting the hours spent billing clients, in working on required but nonbillable activities (like continuing legal education), and adding a minimum amount of personal time, there is simply not much time left to spend on any outside activity, whether it is pro bono legal work, bar activities, political activities, charitable activities, or church activities. The loss of lawyer commitment to these endeavors cannot be good for society; nor can new associates hope to develop into the well-rounded counselors that their clients want and need.
The effects on law firms are not likely to be any better. High associate turnover is one of the reasons that law firms increased their salaries; firms needed to attract and retain replacements. Unfortunately, higher associate salaries will only increase the billable-hours pressure and stress, resulting in ever higher turnover.
Higher salaries, and the concomitant increases in billable hours, are likely to hit women with children particularly hard. Balancing the demands of family and firm has never been easy. Longer hours will only exacerbate that problem. Indeed, given the attractiveness of in-house legal positions, the profession is likely to see more and more women accepting in-house jobs and then parceling out work to law firm partners, who are predominantly male. That shift in power, which is already going on, will accelerate.
Higher salaries will also increase stratification of the legal world. Just as corporations evaluate the profitability of their various divisions or businesses, law firms are deciding whether particular practice areas meet their profit targets and are shedding those that do not. This reorganization is stressful and unpleasant, at the very least, and is not limited to large firms. Higher salaries will only increase the number of less profitable practice areas and the internal law firm debates over what to do about them.
This is not to say that some, and probably many, law firms will not benefit from the new higher salaries. While it seems counterintuitive to say that such increases in the cost of doing business are good for law firms, they are a reflection of strongly increased demands for legal services. These increased demands are almost certain to lead to substantial increases in partner income, just as they did in the 1980s. Whether that increased income will offset the decline in the quality of life that most law partners seem to have experienced remains to be seen.
Impact on Our Clients
The implications for clients are mixed. On the one hand, they will probably be confronted with higher hourly rates, which they will pay, in many instances, because of their increased need for legal services. In response, however, clients are going to do more legal work in-house, and they are also going to examine more carefully the work they send outside to ensure that it goes to the appropriate firm. They will be prepared to pay high rates only for work that is important to their survival, such as bet-the-company litigation or corporate reorganizations. They are also likely to limit the use of or even refuse to have new lawyers assigned to their matters. Some clients are also shifting work from law firms to companies that do legal research-the typical work of new lawyers at law firms.
On the other hand, many in-house legal departments will benefit from the flight from firms that is, in part, responsible for the need to increase associate salaries. While they may not offer compensation comparable to that in leading law firms (except at the higher levels of their legal departments), corporations offer substantial compensation coupled with more reasonable hours and, in some instances, potentially lucrative stock options. This will allow corporations to continue to attract excellent lawyers who have decided that a more balanced life is attractive to them.
Unfortunately, the impact of higher salaries on government employers is not as sanguine. Requests for interviews with government agencies have dropped as much as 50 percent since the recent increase in starting salaries. Higher salaries are irresistible in light of the escalating debts many law students incur. One solution is a loan forgiveness program for students who spend a specified period working for government agencies. Since most of these debts are directly or indirectly owed to the government, this is an idea whose time seems to have arrived.
The implications for the judiciary are also disturbing. In 1979, starting salaries in major firms were approximately $24,000, while salaries for state judges were approximately $50,000 to $73,000, or double to triple starting firm salaries. Now that new associate salaries have reached $125,000, without bonuses, they exceed many state judicial salaries, which range from about $103,000 to $145,000. Indeed, with bonuses, many starting associates will make nearly as much as justices of the U.S. Supreme Court, who are paid $173,600 per year. It is deeply disturbing that experienced lawyers who have become judges typically make less than newly minted law school graduates. For this and other reasons, especially the loss of highly regarded judges to private judging, our judges-state and federal-need increases in their salaries.
The fact is that salary increases are here to stay, at least until the economy experiences a major downturn. Whether they are good for the profession or even for their most immediate beneficiaries-associates in larger firms-is doubtful. It might well be time for us to think harder about what kind of profession we want. Has the pursuit of financial rewards simply become too dominant of a factor in the way we evaluate how and where we want to practice law?