An Embarrassment of Riches
Spiraling associate salaries are having an unsettling effect throughout the profession
By Patricia M. Schnegg
Patricia M. Schnegg is president of the Association.
This President's Page was originally published in the May 2000 issue of Los Angeles Lawyer.
Just four months ago, the starting salaries for first-year associates at major law firms hovered around the $95,000 mark, a figure that many attorneys, especially those in small and medium-sized firms and in government agencies, considered high. Then something happened-I'm still not sure exactly what-and the money started flowing. Possibly it was the need to compete with i-bankers or dot-com wizards. All I know is that it seems to have started as just a rumor and then quickly snowballed into an out-of-control fact.
First, we heard the unbelievable news that big New York firms had decided to set first-year associate salaries at $125,000. Then word spread that Menlo Park's Gunderson, Dettmer, Stough, Villeneuve, Franklin & Hachigian was offering its first-year associates $150,000 per year, including potential bonuses. The Silicon Valley boutiques seemed to think that, with their revenue-sharing arrangements with high-flying technology companies, they could afford these higher salaries and that most of the larger general practice firms would be unable (and unwilling) to match them. They were quickly proven wrong: Brobeck, Phleger & Harrison in San Francisco equalled that figure, and finally, the trend reached Southern California. The trade press reported that a handful of big Los Angeles firms, under what was described as heavy market pressure, were about to break ranks and match those salaries.
In the last 90 days, all big Los Angeles firms have matched the New Yorkers, and some medium-sized firms have struggled to raise salaries to stay within striking distance. The full ramifications of this decision on the legal profession have yet to be fully appreciated, but an analogy to major league baseball seems to be in order: the game was much more enjoyable and meaningful before the salaries of players reached astronomical heights.
The Effect on Associates
As a profession we need to explore the potential impact of this event. Some consequences are easy to deduce. If law firms are going to pay associates more, they are going to want more from them. From the associates' perspective, this means more billable hours and less free time. Minimum yearly billable hours at most big firms have been set in the range of 1,950 to 2,000 or more hours. Of course, to be eligible for discretionary bonuses of up to $30,000, associates are going to have to vastly exceed the minimum number of billable hours.
It is well known that, measured by the return on their billable hours, first-year associates are not worth their salaries. In the past, it was not difficult to justify this discrepancy because firms considered young associates to be an investment in their future. Firms expected low returns in the first years of an associate's tenure in the expectation of receiving a big payoff down the road. Of course, that model only worked when associates were expected to grow into partners and stay with the firm-the until-death-do-us-part mentality that has long since vanished.
The chances are very slim that today's crop of first-year associates will be with their starting firms in five years. Many young associates, recognizing that they will have to work like dogs in exchange for their rich rewards, expect to be burned out by their fifth year and will then contemplate either a change in professions or a move to Portland. Clearly, they appreciate the enormous financial potential of these jobs and, at least in theory, are willing to devote the time and intensity required to fulfill their commitments. However, no one can tell them that billing 2,200 or more hours a year won't take a toll-mentally, physically, and emotionally.
The Effect on the Profession
Small and medium-sized firms are caught in the tsunami effect of this development. Recruiting is becoming a nightmare because young associates do not understand why these relatively smaller firms are not coming close to meeting the large salary increases. Naturally, they are holding out for more. The fact is that few, if any, small and medium-sized firms can raise the hourly rates they charge clients enough to pay the big firm salaries. Medium-sized corporations, public agencies, and nonprofit organizations simply do not pay $300 per hour for legal services, which puts those firms out of play.
What small and medium-sized firms have historically offered associates in exchange for lower salaries is an outside life. This has been translated into a billable hours requirement of about 1,800, great benefits, and a liberal vacation policy. Until now, that trade-off has proven to be acceptable because the gap between the higher-paying large firms and the smaller and medium-sized firms has been reasonable. Now the imbalance is too great to sustain.
Many associates not earning megabuck salaries are dissatisfied. All around town headhunters report that midlevel associates are pounding the pavement, looking to benefit from salary increases that have percolated up to senior associates: fifth-year associates starting at $185,000 and seventh-year associates at $205,000. A new term has been coined to describe these associates: they are called firm-jumpers. Clearly, they are looking for greener pastures, and it is hard to fault them for their efforts. The reality, however, is that not all associates will be able to secure one of these lucrative positions with a big firm, and only time will tell if resentment will grow between the haves and the have nots.
Of course the imbalance is even more startling for attorneys working in the public sector. Without the current feeding frenzy, many young graduates would be drawn into public service-for example, in the Los Angeles City Attorney's Office or in the Office of the Public Defender. Now the imbalance in salaries is too great to ignore, and these new attorneys will think twice about their career choices. This is a very troubling situation that has no easy solution.
Undermining Professional Values
Another troubling fact is that associates will have fewer hours to devote to pro bono activities. This Association, along with pro bono law firms such as Public Counsel and Legal Aid, depends upon attorney volunteers. Where will young associates learn the importance of giving back to the profession and their community and, practically speaking, where will they find the time? My fear is that the salary increases and the imbalances resulting from them will further erode our efforts to preserve the practice of law as a profession. Under this new regime, law firms are businesses and associates are not the future.
It is difficult to assess the situation fully at this early stage, but the warning signs are clear. Those interested in this topic and its ramifications should visit the many Web sites devoted to associates and their salaries. For an overview, start with www.infirmation.com. This site is very useful and lists firms by city, providing information on salaries, billable hour requirements, and insider comments from associates and partners. It also has links to other popular Web sites such as www.greedyassociates.com and the Yahoo club Distressed Partners and Real Los Angeles Greedy Associates. In fact, it was by monitoring an exchange among young attorneys in greedyassociates.com that I learned that associates who do not ask their headhunters for either a Rolex watch or a $5,000 kickback upon signing with a new firm are "unbelievably naive."
All I can do is shake my head and think, "It's a brave new world out there." Can you remember, only six months ago we were worried about the impact of multidisciplinary practices?