Recent waves of salary increases at large firms have brought joy and increased wealth for many associates – but not uniformly.
Big law offers lucrative salaries for associates starting at $215,000 for first-year associates and up to over $400,000 plus bonus earnings for senior associates, yet these salaries come with long work hours that may adversely impact work-life balance.
Firm Profitability
Profitability is a critical factor when considering whether or not a law firm offers raises, and firms with higher profits tend to offer competitive salaries as a response to market needs or when competing for top talent lateral candidates.
Law firms with higher fixed expenses such as rent and overhead are less likely to raise associate salaries unless these increases can be absorbed by client billing rates. Law firms also set salary benchmarks and may move experienced lawyers up the scale to ensure they remain with the firm.
Partners and managers make raise decisions on an individual basis by considering factors like success factors, market factors, strategic considerations and economic capacities when making raise decisions for attorneys. This ensures that those deemed the highest performers receive adequate compensation.
Firm Reputation
Last year saw numerous large law firms increase associate salaries, with Cravath, Swaine & Moore, Skadden Arps Slate Meagher Flom and Latham & Watkins leading the charge. These increases reflect market demand and firm profitability as well as keeping their attorneys satisfied.
Though most law firms employ salary structures that reward tangible achievements (billing hours, case load and client work), some law firms also give raises based on more subjective measures of quality accomplishment such as leadership skills, community involvement or contributing to the firm’s success.
These subjective criteria must often be balanced against the overall health of a firm and can be more challenging to negotiate than objective metrics. Yet, raises can still be significant for those moving ahead in their careers.
Firm Size
Attorneys frequently anticipate receiving annual raises; however, law firm profitability will ultimately decide their success. Firms with significant fixed costs such as rent or overhead cannot increase associate salaries by 2.6-7.7% each year without also expanding overall firm revenue.
Firms with lower overhead may offer more cost-effective salaries. Furthermore, smaller firms may have the flexibility to pay higher wages depending on performance reviews and client demands.
For a law firm to successfully implement its salary structure, it must set goals and evaluate performance similarly to any other business. In particular, success factors recap, market forces, strategic considerations and economic capabilities all must be taken into account; such as prioritizing qualitative contributions of attorneys in early career stages.
Firm Culture
Numerous factors affect an attorney’s earnings potential. Attorneys working in high-demand cities or specialized areas of law typically earn higher salaries than their counterparts working at smaller markets or firms.
Firm culture determines whether an associate or senior attorney receives a raise and how often this occurs. A firm’s culture may include setting forth when associates can become partners or how conflicts of interest should be managed by staff members.
Firms may either employ a rigid system for determining base salary, or flexible arrangements may be implemented. Firms should evaluate and adapt their cultures as necessary in order to keep pace with competition and attract top talent; firms must balance this evaluation against their ability to effectively manage costs, billable rates and operational efficiencies; while having an equitable compensation structure promotes positive behaviors within an efficient practice environment.
Firm Competition
Position in the legal market has an effect on how firms pay associates. Firms with large corporate clients might offer higher salaries to attract and retain junior lawyers.
Law firms frequently offer bonuses based on performance and billings that can significantly boost an attorney’s total compensation package.
Recent rises in starting salaries have had an enormous effect on other aspects of the legal market. New York City’s increased median first-year salary set an example that many firms across the nation followed, benefiting both new associates and smaller firms alike with increased client rates, possibly leading to shifts away from traditional fee structures like billable hour requirements or fixed fees.
