Top Performers ‘Likely’ to Raise Associate Pay After Milbank’s Move, but Broad Hesitancy

Law.com, November 8, 2023

By Jessie Yount

Some elite firms that typically compete at the top of the market are likely to raise associate salaries after Milbank increased its pay scale on Tuesday, but on the whole, there’s more reluctance in the market this year for wholesale market matching, recruiters and industry observers say. 

On Tuesday, Milbank said it would give associates in each class a $10,000 raise in 2024, with the most junior class making $225,000. The firm said it will keep the year-end bonus scale in line with last year’s, ranging from $15,000 to $115,000. 

Multiple legal analysts said Wednesday it was either “likely” or “very” likely that Am Law 25 firms, and/or firms that have seen similarly productive years as Milbank, would match the move. One analyst said at least some other firms will “absolutely” follow suit—and could potentially increase the bonus scale, too. Some elite firms might also try to go above Milbank’s salary scale.

But there’s also a broad market hesitation, some analysts noted, arguably underscored by the lack of immediate, similar moves. As of Wednesday afternoon, about 24 hours after Milbank’s announcement, the industry was still waiting for additional dominoes to fall, and no other firms had publicly matched the Milbank salary scale.

Some firms appear to be waiting for other market leaders, such as Cravath Swaine & Moore and Davis Polk & Wardwell, before budging on market salaries and bonuses, according to sources. Indeed, some of the usual early matchers in the industry were silent, but firms were likely still in partnership talks by Wednesday. 

A salary increase for associates comes at a time when firms are still grappling with rising costs, geopolitical turbulence and existential questions surrounding politics and technology.

“It felt like a firm statement that some firms are doing well,” said Zsaleh Harivandi, a recruiter at Swan Legal Search. “So many firms have shown time and time again they want to be competitive. But there are always going to be firms that can’t quite [justify it,] or that’s not where their priorities are.” 

Certainly, there’s reason to believe that Milbank won’t stand alone. Law firm management consultant Kent Zimmermann said the reality is, “if every other firm from this moment forward, just held their fire and didn’t raise, it would just be Milbank raising, and no one would need to raise. But history suggests at least one more firm will match, and that’ll cause others, and it’ll domino across the industry.”

Marcie Borgal Shunk, a law firm consultant and founder of The Tilt Institute, said she thinks some firms will “absolutely” follow suit, and some with strong enough financials could increase bonuses, too, “particularly if they’re asking their people to do things others aren’t asking,” she said, pointing to a trend toward four and five days of in-office work, for example.

But this time around, fewer law firms may not immediately follow large-scale salary increases. Zimmermann noted that the market fundamentals today, including the state of client demand and associate supply, “don’t suggest to most firms that they need to raise compensation in the absence of other firms raising compensation.”

As a whole, law firms saw modest average revenue growth of 4.0% through the first half of 2023, while demand declined by 0.9% and the collection cycle continued to lengthen, Citi reported, based on the bank’s survey of firms.

“Associate salaries in some instances are higher than what is going to be tenable for some firms, so I think there is going to be some analysis being done—really taking a look at it and making sure the moves being made are thoughtful and not going to be a long-term burden or commitment that they’re getting themselves into,” Borgal Shunk added.

More Stratification

Some analysts noted the move could further stratify the industry.

“The salary raises are stepping up the game,” said Jennifer Henderson, a recruiter at Hatch Henderson Fivel, noting that a divide began to emerge in the industry in 2011 when some firms raised salaries and others matched at the bottom of compensation scales while compressing salary at the top. “This is another step in creating that divide between the very elite firms and those trying to keep up,” she said. 

Henderson pointed to a heightened focus on profitability this year, which directly contradicts an increase in one of a firm’s largest expenses—associate compensation. And while there are some firms that may benefit from strong litigation, energy or other key practices in high demand, the industry as a whole has been relatively flat, she said. 

“Firms are going to have to make a choice,” Henderson said. “For some firms in the lower tier that may have kept up with the Joneses until this point, this might be a breaking point.”

“It might be a smaller group” of firms that match, Harivandi agreed, noting that she wouldn’t be surprised to see firms that had layoffs earlier in the year tread lightly. “It’s not so much like the 2021 race for talent,” she said. 

Milbank’s move to increase associate salaries “felt like a nod to a quieter year,” she added. “[Firms] don’t have the space to go up on bonuses, but the outlook is positive. They’re optimistic about where they’re going and they’re able to plan ahead with higher salaries.” 

While there’s likely a group of firms in a similar position, smaller firms that don’t typically compete on top-of-market compensation are likely weighing their options, Harivandi said. Many smaller Am Law 200 firms and midsize firms increased associate base pay in recent years, and some even wrote higher salaries into offer letters before raises were rolled out firmwide, she said. But this year, things feel a bit different. 

“It can be difficult for smaller firms to pivot,” she said. “They won’t do it as quickly as other big firms, but I’m sure they’ll talk about it and maybe we’ll see it later in the year.” 

As for bonuses, however, recruiters were generally more skeptical about the prospect of firms coming over the top. However, bonuses may be applied more subjectively or creatively, some said. 

Some firms may match bonuses at the low end, or link bonuses more closely to hours, as they did last year, Henderson said. 

Bonuses may also be a tool that firms use to reward particularly high-performers, even if performance is more varied across the firm. 

“In the past, we have seen firms that focus exclusively on litigation do some really interesting things with bonuses—especially above-market bonuses even if the industry standard is not that,” Ru Bhatt, an associate recruiter at Major, Lindsey & Africa said. “I’d anticipate more of that given conversations I’ve had with some of these firms about the need to attract great talent.” 


https://www.law.com/americanlawyer/2023/11/08/top-performers-likely-to-raise-associate-pay-after-milbank-but-broad-hesitancy-lingers/