Cravath Swaine & Moore shook up the legal industry this past June when the prestigious law firm raised first-year associate salaries to $180,000 from $160,000. Just a couple of days later, 14 of the firms on Crain’s annual ranking of New York’s largest law firms had given their associates the same $20,000 raise. A few months later, the tally of followers is up to 23 of the 25 firms on the Crain’s list.
“The brightest college graduates could work for big investment banks, private equity funds or hedge funds, where they can potentially make more money,” said Peter Zeughauser, founder of the Zeughauser Group legal consultancy. “Cravath wants to attract them for an entire career practicing law and has always been the industry leader in compensation. When Cravath raises salaries, the other big New York firms follow, because they feel like they’ll [otherwise] be a less attractive place for talent.”
The 25 firms on the Crain’s list, Zeughauser noted, have all been very profitable in recent years. This is largely because the stronger economy has brought top law firms more corporate work, including representing bank CEOs testifying before Congress and handling mergers and acquisitions, the latter of which is among law’s most lucrative practice areas.
“Corporate associates have been working at a feverish pace as M&A activity has been very good,” said Mark Jungers, cofounder of the Lippman Jungers legal recruiting firm. “They’ve been working like dogs. It was probably time to drop a little money on them—make sure that they’re at least a little bit happier.”
For a time, these corporate profits were lining the pockets of partners while the typical associate was working 70-plus hours per week with little time off and no commensurate pay bump. Combined with the rising cost of living in New York, the recent 12.5% raises seem justified. But they will cut into law firms’ profits, which will have some ripple effects for clients.
“Most of the lost profits could get made up in hours or expectations,” said Jungers. “Part of what makes this easier for law firms to absorb is that billable rates go up every year, and maybe this year they go up a little bit more than usual.”