The Sickening Absurdity of Associate Base Pay
Unsurprisingly, no law firm has had the courage in recent weeks to say, “In light of the unjustified first-year associate salary increases, we are reducing first-year base compensation by $10,000 to better align our business with our clients’ ongoing economic reality and invest in our client relationships.”
There is no value to your clients in increasing associate salary to unjustifiable base levels. And that matters because clients don’t just want smart lawyers—they want lawyers who demonstrate a modicum of business acumen. Absurd lemming-like behavior such as raising rates in a silly game of “me, too” is bad for law firms, bad for clients and bad for the industry.
Law firm leadership thinks that the publicity of not raising rates is a bad thing. However, poorly run businesses deserve to fail. And the notion that withholding big salary increases will prevent law firms from recruiting first-year talent is baseless paranoia.
Not one law firm stated it was raising associate salaries because it couldn’t hire good talent. Cravath started the trend, and Cravath does not have a problem attracting talent. Even worse, many of the firms matching Cravath’s model do not have: 1) The economic resources equal to the profits of such a firm as Cravath, 2) Clients that don’t care about the fees, or 3) A plan to prove value back to the clients because of the move.
In the past, the logic behind crazy associate salary increases (such as in the late 1990s dot-com bubble) was simple: In order to attract the best/top lawyers from the top law schools, we have to pay top dollar. The current reality is very different. Law schools are struggling to find jobs for their students, and as one law firm managing partner recently said to me, “There is no correlation between a law student’s academic ranking and his or her ability to bring in business or have a successful career at a law firm.” And I won’t do more than mention the absurdity that a first-year makes more than many in-house counsel with decades of experience. The optics of that are quite literally offensive to clients.
For almost 25 years, I have been having conversations with law firm leaders about what they are doing to deliver value to clients, and more frequently I am having the same conversation with clients. In the past five years, more than 70% of the corporate legal (and other) executives we interview say they are focused on the value they receive from outside counsel. We don’t waste time asking them whether they receive value from the first-year associates law firms hire, because the answer would always be no.
And that’s why the lemming-like behavior is bad for law firms, is bad for clients and will likely lead to a worsening economic environment for law firms. Firms will have to do what so many firms did 15 years ago: They will have to make bad short-term economic decisions that will hurt the firm and its ability to add value back to the client.
Law firms will fall back to the same old bad habit: cutting investment (expense) to shore up short-term profits. But it’s a crucial mistake. Law firms need to invest far beyond talent to create loyalty and deliver value to clients.