There is no question that competition for top talent in the legal industry is red-hot. Why? Strangely, it appears that Big Law realized a bit of an upside during the pandemic. During the shutdown, demand for legal services increased considerably. That, coupled with low overhead costs due to closed courts and remote work, has resulted in law firms having the financial wherewithal to considerably bump up their salaries. That is why we currently have a “salary war” on our hands this summer.
Is that a good thing for bright-eyed law grads from top schools? Is that a good thing for those looking to make a lateral move? Well, sure. Salary is, typically, a main driver of any job decision. Yet, there might be more that meets the eye.
In this article, we are going to talk first about the latest “salary war” news that is as hot as some of the latest summer temperatures we have been experiencing. We will then take a step back to discuss the unintended consequences of stratospheric associate salaries in Big Law, and what that means for lawyers both in Big Law firms and in-house.
The Summer “Salary War”
Big Law is trying to keep firm associates engaged. The volume of work in big firms has remained very high, and it is expected that litigation will increase even further as courts reopen. Yet, the threat of burnout is also high based on the stress and uncertainty of the last year, combined with increased workloads. So, Big Law firms are using their most popular solution to wilting morale – increasing salaries. As noted, the larger law firms have money to spare.
Accordingly, on June 10, Milbank announced that it was raising pay to $200,000 for first year associates, and $355,000 for associates with the most experience. Not to be outdone, Davis Polk & Wardwell announced the following day that it was raising pay to $202,500 for first year associates, and $365,000 for senior associates. Then, that same day, six other firms announced that they were basically matching the Davis Polk salary scale. Finally, and most recently, Kirkland & Ellis, with the highest gross revenue in 2020, entered the mix, matching the Davis Polk scale as well.
At first blush, these numbers seem at once mind-boggling, and great news for law firm attorneys. Two decades ago, the big question was whether law students right out of law school should make six figures. Now, first-year salaries have crossed the $200,000 threshold, and eighth-year associates are well into the $300,000s. Given that high salary, though, is it all upside for firm attorneys?
The Non-Financial Costs of Doing Business for Big Law Attorneys
Working in Big Law has always demanded a great deal from lawyers, particularly younger associates. Those costs come not only in long hours, but lost time with family and friends, missed milestones with loved ones, and even a tax on one’s health. The bargain was, though, that the salary for a Big Law job was considerable, to offset all those lifestyle costs.
Does that bargain, however, stand the test of time? With the increase in salaries resulting from the current “salary war,” it is highly likely that even more will be expected from already overworked attorneys. While that may be good in the short term, when trying to pay down law school loans, rent a luxury apartment, or jump start a nest egg, lawyers may not wish to remain in that world for very long.
Thus, Big Law might be hurting itself in the long run because the expectations that come with a high starting salary might create a disincentive for lawyers to even choose Big Law in the first place. At the very least, many associates will try to leave as soon as they can once they have experienced the grind for a few years. That leaves an even smaller pool of attorneys willing to shoulder the Big Law burden, thus driving salaries and competition for talent even higher.
What About Client Costs?
Another consideration, and a possible unintended consequence of a Big Law “salary war,” is that clients might start to re-evaluate whether outsourcing their work is worth it. Of course, some companies are so focused on completing the deal or winning the litigation, that law firm expenses are of nominal consequence. Yet, other companies might find that they can obtain roughly the same goal by keeping certain types of legal work in-house. Thus, they may choose not to underwrite Big Law’s salary war.
Interestingly, then, the high cost of law firm work might actually result in more opportunities and an increased demand for in-house counsel. The pay for in-house positions will likely not rival the Big Law salaries for younger attorneys, but the reduced pressure of most in-house environments might allow for a desirable balance in the legal profession.
Conclusion
In sum, the salary war we are currently observing this summer sounds great on the surface for young associates in Big Law. Yet, a lot is demanded of those receiving those Big Law salaries, and the pendulum of the market for legal services has a way of swinging back after such a market shift.
Indeed, the glow of high salaries and bonuses will certainly fade upon closer examination, and as we discussed, could even lead to better in-house opportunities. The resulting market pressure from the current increase in Big Law salaries might just put further increases on hold for quite some time.
