4 Reasons Big Law Associate Pay Hikes Are The Wrong Way To Go

Once again, law firms have taken the shortest road to what they hope will solve the problem of attracting associates in a market where some practice areas are experiencing a shortage of talent. Anyone who follows Big Law is used to the schizophrenic approach of firms – first downsizing and restructuring in certain practice areas, followed by raising starting associate salaries for no real reason. Not surprisingly, clients don’t like it either. The lack of self-reflection and refusal to create long-term strategies in large law firms continues, with the most recent being Big Law starting salary increases. There are a multitude of reasons that this is a bad strategy when you consider the overall market for legal services and the dwindling market share of traditional law firms. What follows are some of the most glaring.

1 – Associate Pay Increases Are Unnecessary – It’s impossible to believe any associate was complaining about a $160,000 starting salary. Large law firms should be restructuring associate pay to greater reflect the value associates can bring to a firm over the long term.  Why not create an incentive structure more like that of financial services with a relatively low base and much greater bonus potential? A bonus of up to 100% of salary is certainly a goal worth working toward. Unfortunately, the answer for most in Big Law would probably be, because we’ve never done it that way.

Law firms are still obsessed with hiring associates who are superficially the best and brightest. But there are so many important qualities needed today, these surface measures don’t necessarily capture the savviest of beginning lawyers. Anyone who’s worked at an Am Law 200 firm for an appreciable length of time has experienced the top ten law school grad who can barely string together a coherent sentence and whom you would never put before a client (you know I’m not exaggerating).

Meanwhile, there are still many new law school grads who can’t find a decent job that pays enough to live modestly and make their (significant) law school loan payments. The funnel for top law firm jobs for those who graduate at the top of their class has been reduced tremendously since the downturn in 2008. Most firms have not gotten back to pre-recession summer associate class levels. Some shudder (and they should) at the thought of having to increase already-inflated associate salaries since the second tier of the Am Law 200 hasn’t really recovered at all.

2 – Millennials Are More Impervious To Inflated Salaries Than Prior Generations – Do law firms want to attract those associates who place the greatest emphasis on pay? Raising salaries is a great way to get associates who most value money over the short term. Often these are graduates who are focused on paying off law school debt as quickly as possible (as they should be), but then will look to get off the treadmill. When I am recruiting an associate and the first response I get is “how much does it pay?” I dump that prospect. It’s a telltale sign that this individual is unhappy now and may jump for a few dollars, but will jump again soon.

Although I’m quite certain some new associates believe they’re well worth the new starting salary of $180,000, millennials are less likely to be seduced by salary alone. It’s as if law firms have no idea what else they can do to attract top talent. Most millennials who graduate from law school today are focused on work/life balance issues. Although I often question whether they know much about it yet (how can you recognize work/life balance if you’ve never worked hard in the real world which, by the way, differs greatly from law school?), I hear many young lawyers express their frustration at their firm’s expectation that they will work away the next ten years of their lives. They’d actually like time to spend some of that money they’re making.

Millennials are perhaps the least prepared of any generation in law to make the sacrifices and become workaholics for their firm. No matter how we may feel about their values about work, free time and personal fulfillment, many will look at bigger salaries as the ultimate trade-off for their freedom. And they will not succumb to the superficial rewards that Big Law offers.

3 – Increased Pay Will Not Help Associate Retention – It’s hard to believe that the transaction costs associated with recruiting and hiring associates only to have them leave after a year or two is still not tracked in the vast majority of law firms. One of the most disheartening aspects about the recent increases is that it’s a substitute for fixing anything in law firms. There’s so much broken, and given the fact that most clients have refused to pay for beginning associates for some time now, it just creates additional financial burden on the firm (see below).

Instead of actually looking at associate retention issues and figuring out how to keep associates from leaving, salary increases just scream, “We want you for today and tomorrow. Who cares about next week?” People change jobs more frequently today than ever before. Given the difficulty of work environment and the pressures of the work itself that comes along with practicing in a large law firm, young associates are less likely than ever to stay. Rather than throwing cold, hard cash at the problem, law firms should start to look at hiring and transaction costs of associates to calculate the true cost of getting one to two years of work out of an associate before he moves on. Creating a real strategy to retain and professionally develop associates could go a long way.

4 – Big Law Can’t Afford It – Although we are all familiar with the top earning firms in the Am Law 50, increasing associate pay shouldn’t even be a thought for most law firms. The economy has gotten better, and transactional work in particular was strong last year, but that was last year. Even if we don’t subscribe to more strongly-worded projections about a downturn, law firms have a nasty habit of basing hiring on the past, not necessarily the future. They are among the worst predictors of the future need for their services, in particular because of their constant short-term view.

The market for legal services is not experiencing a renaissance, and although overall spend on services may be increasing, law firm market share continues to decline. Every week alternative legal service models and technology are being combined to further eat into traditional law firm market share. The need for substantive change in traditional law firm models, structures and compensation is more pressing than ever. Firms who have not even begun to take action to remain competitive and to restructure those aspects of the business that can keep them competitive are already feeling the pain. Unfortunately, some of those same firms are probably feeling pressure to increase associate salaries with a follow-the-herd mentality that characterizes most law firms.

Big Law firms who raise salaries are once again missing the boat and an opportunity to do things differently in an increasingly competitive environment. They will succeed in attracting what they, in arcane fashion, consider the best and brightest, but in all likelihood they will not keep those associates for long. And in the process, they have done nothing to fix a broken system that moves closer to being beyond repair.