The Salary Wars That Almost Didn’t Happen

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The Shift: The Salary Wars That Almost Didn’t Happen

Just when it seemed Milbank’s shot over the bough with associate salary hikes would go unanswered, the market has finally responded, and with increased firepower.

It was Nov. 7 when Milbank announced it would increase starting salaries for first-year associates by $10,000 to $225,000, with the scale reaching $425,000 for eighth-year associates. Along with that announcement, year-end bonuses were reported to range from $15,000 to $115,000.

The last time the market saw a salary increase, Milbank also led, when in January 2022 it increased pay to $215,000—the second hike the firm made in less than 12 months. When the Jan. 2022 increase was announced, it took two business days for other firms to match. That in and of itself was longer than we’ve seen previous salary wars take to begin, but it’s lightning speed compared to this go-round.

Milbank was the lone Big Law firm paying $225,000 for first-years for 21 days. Yes, Thanksgiving was in the middle of that three-week period, but the pause in other firms seeking to match shows the shift in how firms are approaching salary hikes.

The Conversation

For Milbank, the firm attributed the latest increase to a material increase in productivity in the firm in the last year—not a problem many firms are struggling with amid a continued softness in certain deal markets that have not picked back up as fast as most firms anticipated. Coupled with an increase in the cost of living, the salary hikes and bonuses made sense, the firm said.

“We thought through kind of a whole range of options, this is where we came out,” chair Scott A. Edelman said in an interview. “The bonuses are significant bonuses, and I know there’s been some press about some firms facing challenges and complaining about the business environment—we’ve had a very, very strong year this year, and we thought it made sense to just let people know that we’d be able to [give them an increase].”

A day later, on Nov. 8, industry observers said elite firms, such as those in the Am Law 25, would likely match Milbank, but that a broad-based response from Big Law was unlikely. Even those in the top 25, though, stayed silent for a few weeks, though clients were not.

“In the long run,” said Andrew Woods, general counsel at PubMatic, “continued increases in hourly rates are growing far faster than our outside counsel budgets and are just not sustainable for clients to bear. Unless the firms implement controls to bring their rates down, we’re going to have to move spend to other solutions.”

But firms ultimately found that a continued competition for talent at the partner and associate level, along with inflation, were reason enough to match Milbank.

The dam broke Nov. 28 when Cravath exceeded Milbank’s increases on the top end of the scale. Shortly after, McDermott, Will & Emery and Paul Hastings matched Cravath’s scale.

“Everyone knows how much we love our associates and we believe that their happiness and advancement are so good for our clients and the firm,” said Ira Coleman, chair of McDermott. “If you really want to be a true career accelerant, you need to pay top-of-market compensation (and do a bunch of other things that make up our secret sauce). It’s just one part of a larger equation.”

As of this writing, Paul, Weiss, Rifkind, Wharton & Garrison; Dechert; Hogan Lovells; Proskauer Rose; Baker McKenzie; Davis, Polk & Wardwell; Sidley Austin; Wachtell, Lipton, Rosen & Katz and Skadden, Arps, Slate, Meagher & Flom matched.

The Significance

The slowness of matching is indicative of just how difficult a decision it is to take on this unplanned (and significant) increase in talent costs in the current market. But it also shows how competition for talent doesn’t slow even if client demand does.

Before other firms matched, leaders of firms across the Am Law 100 were skeptical about Milbank’s move.

“I’ve been surprised by how many firms say they’re having a terrific year because we are not having a terrific year,” said the leader of a firm in the Am Law Second 50. “In the transactional market and M&A market, there are big deals being done, but the total volume of deals being done isn’t as great. Big deals are being done by those big firms so they’re fine. But since the total number of deals getting done is less, it hurts firms like ours.”

A leader of an Am Law 50 firm called the raises, along with Edelman’s comments, “tone deaf” because of the slower demand environment in 2023: “It’d be like saying, ‘Look how rich I am,’ when the economy is struggling.”

But as more firms matched in late November, some made a point to announce they would offer premium bonuses to certain associates on top of the higher bonus scale they were announcing in matching Cravath. It’s not unusual for firms to pay certain associates a bigger bonus for exceeding billable targets, but highlighting it shows the firms want to make a statement to talent—existing and prospective.

The Information

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The Forecast

While it seemed the market may have been considering taking this opportunity to let Milbank stand alone at $225,000 and put an end to salary wars that most firms bemoan, the pressure to be top of market was ultimately too much. We will likely see a number of other large firms match.

To get a sense of how many firms may still look to increase salaries, the latest NLJ 500 data is instructive. As of mid-year 2023, Wachtell, Lipton, Rosen & Katz paid $220,000 for first-years and another nearly 70 firms, mainly across the Am Law 100, had gone up to $215,000—the scale Milbank set the last time it increased salaries in early 2022.

So while predictions of mainly elite firms following suit this time around make sense given market conditions, history shows pressure to match the top of market is something felt by nearly the whole of the Am Law 100.

Gina Passarella is SVP of content for the legal newsroom, overseeing the editorial operations of all of ALM's legal publications. Gina's coverage focuses on the business of law, client relationships, law firm strategy and the future direction of the profession. She also has a particular focus on mental health in the legal profession. Contact her at [email protected]. On Twitter: @GPassarellaTAL