Finally, a living wage.

The New York Law Journal reports that Sullivan & Cromwell has increased associate base salaries by $20,000 across the board. Under the new pay regime at S&C, first-year associates at S&C will get $145,000 a year, before bonus.

Recently, a spate of Los Angeles-based firms raised first-year salaries from $125,000 to $135,000. According to the NYLJ article, Sullivan & Cromwell’s move will likely be followed by other top New York firms...

I’m not one of the people who thinks first-year associates are overpaid.

If you believe there is a free market in legal talent, the “overpaid” myth must, as a matter of economic necessity, be false. Firms are paying exactly what they must to attract a certain quality & quantity of talent–no more, no less. The question folks ought to ask is: what market forces have conspired to create such extraordinary wage rates?

First, members of the UCLA graduating class might view these salary levels as normal, but for those graduating from Loyola, Southwestern, Glendale School of Law, et al., they’re the exception. Major firms employ a lot of lawyers, but they still only soak up a small proportion of each year’s graduating class. Grads of lower-prestige law schools aren’t going to have access to the absolute top-paying jobs. (For that matter, I wonder what the mean salary across the entire class of 2006 is–a much less impressive number than $135K, that much I can guarantee)

Plus, first-year associates are often deeply in debt. So much of these huge salaries are going to pay off school loans. In other words, first-year associates have to get paid well because law professors have to get paid well.

And by most accounts, big-firm work is tedious and bulky (if not especially difficult) and consequently there is huge turnover within a few years of hire. So of all the associates who get these starting salaries, many (most?) of them only earn at that level for a few years.

Let me suggest those of you taking these jobs might even be underpaid. One flaw in my free-market theory is that these top-tier firms are matching each other’s salaries. (I won’t explore the anti-trust ramifications of that practice.) Bonuses restore some of the differential.

But the flat-pricing practice conceals differences in base salaries that might otherwise exist: some firms would pay less, others would pay more. The ones who would pay more are getting a bargain; the ones who would pay less are paying a premium to participate in the top tier of the labor market. I wonder if the best ‘deal’ for a law grad in terms of exploiting market inefficiency would be to go to work the firm who bills the least yet is still paying the top-tier salary.

But those of you going to the mega-huge firms, I guarantee you will be doing more than $135K worth of work. (No, I don’t believe the urban legend that law firms lose money on first-year associates. That’s a crafty bit of marketing to make you think they’re doing you a favor.)

Furthermore, law firms can benefit across the board from the negotiation imbalance. You as a law grad have no idea what your skills are worth. You probably haven’t ever negotiated a substantial pay package. And the flat-pricing structure gives your firm an easy way of saying “sorry, that’s the best we can do”. That’s another reason there’s such large attrition at these firms: once an associate travels beyond the veil of ignorance, you can’t keep ‘em down on the farm.

Anyways, enjoy your money. You earned it fair & square.

07 Feb 06

Comments

An internal memo suggested that although the base salary may be increased, total compensation should be roughly the same, so it’s not expected to provide much of a raise once the decrease in bonus is taken into account.

Posted by: Informed Associate at February 7, 2006 03:29 PM

...sounds like the makings of a “transition plan”.

Posted by: MD at February 7, 2006 05:35 PM

I’m looking forward to my interview with Satan at Spring OCIP. Wish me luck!

Posted by: Carpe Diem at February 7, 2006 07:34 PM

If a law school graduate can get that kind of money, then go for it. The money is important in the short run and the “prestige” on your resume of working at these places is good in the long run.

As a competitor to these firms with my own smaller firm, I have to laugh when corporations whine about the over billing of large law firms and how they hate having less experienced lawyers “earn while they learn” the file.

If these corporations wanted to “revolt” or really rein in their legal costs, then they would not just keep paying these hourly rates or rate hikes etc.

The law firms paying these salaries to keep associates because of the tedium, the hours and the minimal chances of making partner in this day and age of having a book of business. They pass on these wage hikes to their clients; the partners never take a pay cut at these firms when salaries are raised.

So if corporate America, or shareholders are worried about trimming their costs, then “review those bills” and see where the fat is really being manufactured.

Thus, as a competitor to these “major firms”, I wonder if corporate counsel are really evaluating whether or not they are getting a fair deal.

Posted by: konrad trope at February 8, 2006 10:47 PM

matthewb @ ucla
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