Do you think a $20k raise is generous? Forum

[Old Gregg]

The recent raise is great and all, but I'm stuck wondering whether they should've been higher. By my back of the envelope math, these raises represent maybe a decrease of 1% profit margins for a big law firm. Not really a big deal.

It's a big deal because salaries finally went up. And now ATL is doing this thing that not all law firms should actually match. But I think these articles get it wrong... seems to me that any big firm can afford this as it doesn't really influence PPP that much.

Curious to read people's thoughts.

[rpupkin]

The recent raise is great and all, but I'm stuck wondering whether they should've been higher. By my back of the envelope math, these raises represent maybe a decrease of 1% profit margins for a big law firm. Not really a big deal.

Your math skills are quite poor, even by back-of-the-envelope standards.

[Old Gregg]

Ha. You're like the worst kind of poster on TLS. The one who just says someone else is dumb or poor at something without saying why. But please, entertain me and do the math for me then (I became a lawyer for a reason remember). There are some assumptions built in:

Billable rate: $450
Average annual collected hours for associate: 2,500

Salary accounts for 14.22% of the margin for $160k. 16% of the margin for $180k.

[TLSModBot]

If you look at the raises as a % of gross revenue, sure it's small. The better way is to do it as a % of NOI/profits (Baker & McKenzie and Latham have super large revenues, but they're not the most profitable so it seems weird to say they could afford the raises more than, say, Wachtell).

There is only one firm that comes out under 1% - Wachtell. All the others are over (only a dozen in the AmLaw 200 are around the 1% mark). It varies widely, but the overall average across all Amlaw 200 firms is ~4.3% of total profits.

[TLSModBot]

I used AmLaw data to get each firm's Net profits/NOI, number of non-partner (equity or otherwise) attorneys, and estimated conservatively a $20K raise for each (even though, following the Cravath scale, it would in reality cost them more). This also assumes each firm raises at ALL of their offices, so the realities of major vs. secondary markets might offset this cost somewhat.

[jbagelboy]

There are a ton of problems with those assumptions (variable billing rates across associate years, various pay increases from 20-35k across associate years and levels, significantly lower billable hours to client per associate than 2500, different calculation depending on firm RPL and PPP), but putting all that aside, Cravath definitely low-balled the market. We deserved 190 starting to 340 at yr 8.

[TLSModBot]

Cravath definitely low-balled the market. We deserved 190 starting to 340 at yr 8.

Yes, regardless of the discussion above, this is true. Thank you for keeping perspective that this is just a start, not the end goal. Can't let them cheat us.

[Old Gregg]

Definitely. I don't think the assumptions are uncontroversial, but I was trying to illustrate a point.

I think the raises were too low and firms could've done quite a bit more before it substantially impacted their profits, although it remains to be seen how bonuses are treated come December (i.e... we could very well go to 2008 levels).

[bern victim]

It doesn't really matter whether it's generous. They're just trying to keep the associate curve the right shape. At the 160 scale they must have been seeing too many ppl going in house earlier than desired, and/or weren't seeing enough first year candidates to get who they liked. They'll probably continue to evaluate after this raise.

The only way to get more money for biglaw associates is to leave biglaw.

[First Offense]

Of course it isn't generous. Biglaw isn't in the habit of being generous.

It's significant, though.

[smaug]

I guess we will see what it does for retention which is probably why the gave the raise to begin with. It's easy to look at PPP and say "they could pay more" (they could!) but the fact that everyone moves make me think it was aimed at slowing attrition more than anything else. How generous it is should be measured against that more than anything else.

For first years it's clear that the market supported 160. Glad to get 180, tho

[dixiecupdrinking]

180 is pretty generous in that it's an order of magnitude more than any other legal employer would pay you as a first year lawyer.

[bern victim]

I think it's aimed at slowing attrition but they don't want to slow attrition too much either.

[First Offense]

I think it's aimed at slowing attrition but they don't want to slow attrition too much either.

It may actually be pretty shortsighted. There was a lack of midlevels due to lower hiring during the recession. Assuming the move was to keep midlevels and seniors, it may create an issue a few years down the road when the post recession hires are not leaving.

[LaLiLuLeLo]

If you wanna get really depressed, figure out how much you make an hour.

[TLSModBot]

I wonder how much a higher salary really will change associates exiting out of Biglaw? I can't imagine money is the driving concern for people leaving Biglaw for much lower paying jobs (what jobs DON'T make you take a paycut when you move out of Biglaw?).

I bet they could've saved some money by reducing people's hours a little (no, I'm not sure how that practically would happen). People working 80 hours less billable per year is probably gonna cost the firm about the same ($400/hr * 80 hours = $32,000)*. I bet it'd make a more positive different in retention than just handing out more money.

*note: $400/hr is the average collected hourly rates for large law firms. So this factors in both actual billings rates across years/markets AND write-offs for all the standard reasons. See Page 6 of this report for more details.

[dixiecupdrinking]

I wonder how much a higher salary really will change associates exiting out of Biglaw? I can't imagine money is the driving concern for people leaving Biglaw for much lower paying jobs (what jobs DON'T make you take a paycut when you move out of Biglaw?).

I bet they could've saved some money by reducing people's hours a little (no, I'm not sure how that practically would happen). People working 80 hours less billable per year is probably gonna cost the firm about the same ($400/hr * 80 hours = $32,000)*. I bet it'd make a more positive different in retention than just handing out more money.

*note: $400/hr is the average collected hourly rates for large law firms. So this factors in both actual billings rates across years/markets AND write-offs for all the standard reasons. See Page 6 of this report for more details.

My hours already fluctuate by way more than 80 year over year, so yeah, I wouldn't believe for a second that my firm was actually reducing my hours in lieu of a raise. If there's work, it needs to get done. But I also agree the extra money isn't going to help retention much. Everyone who leaves already is taking a pay cut. The raise buys them a short term morale boost. In a year or two, I doubt you see any difference in retention.

[Anonymous User]

My firm hasn't matched but I think my raise class year to class year, and comp overall, is pretty generous. I've brought in business but nowhere near enough to cover my own ass so I need rainmakers to live and overall they're giving me a fair cut.

[Monochromatic Oeuvre]

No, it's not generous (especially for firms with profits like Cravath). But then again, Biglaw firms never are.

The long-term trend is still gonna be toward bifurcation. As long as Hogan and Bracewell and Mayer Brown are matching, the market isn't gonna be done moving. That may not mean comp increases (some of those forms will just merge or fold), but we're still not at equilibrium yet.

Also, even if bonuses stay the same, some percentage of the raise is probably coming back in higher bonus targets or just higher hours in general.

[TLSModBot]

The long-term trend is still gonna be toward bifurcation. As long as Hogan and Bracewell and Mayer Brown are matching, the market isn't gonna be done moving. That may not mean comp increases (some of those forms will just merge or fold), but we're still not at equilibrium yet.

I agree with this 100%. The difference in profitability and growth within the AmLaw 100 is just staggering - no way they can all keep moving without some more significant mergers/dissolutions. But I think eventually someone's gonna balk hard instead of folding, and others will follow.

Not this time though, by the look of it.

[Lexaholik]

No, it's not generous. But owners (equity partners) of sustainable businesses will rarely be generous.

There's a lot of commentary about "firms" and why they raised. There's no "firms" here. There's only one, single firm that matters, and that firm is Cravath. Everyone else is copycatting to avoid losing a recruiting edge, so their reasons are totally irrelevant.

Why did Cravath raise? It's hard to say. I'm not seeing historically high defections to in-house jobs like we did in 2001 and 2006-07, the last two rounds of raises. My hunch is that Cravath's dramatic decision to cut associate headcount from 2010 and 2011 has accordingly reduced the number of midlevels in 2016. Combined with their normal level of attrition and their reluctance to hire lateral associates means they need to raise salaries to increase retention. That's a Cravath-specific solution to a Cravath-specific problem though. All other firms are just copying.

[mvp99]

I dont think they are being generous. 99% of companies out there are not generous (defining it as giving you more than youre worth and keep the business profitable). They pay you just enough so you don't leave, thats it. This is capitalism, not a charity.

[DELG]

I dont think they are being generous. 99% of companies out there are not generous (defining it as giving you more than youre worth and keep the business profitable). They pay you just enough so you don't leave, thats it. This is capitalism, not a charity.

And presumably Cravath felt they weren't paying enough to hold on to midlevels. Probably just tightening the golden handcuffs.

[jbagelboy]

No, it's not generous. But owners (equity partners) of sustainable businesses will rarely be generous.

There's a lot of commentary about "firms" and why they raised. There's no "firms" here. There's only one, single firm that matters, and that firm is Cravath. Everyone else is copycatting to avoid losing a recruiting edge, so their reasons are totally irrelevant.

Why did Cravath raise? It's hard to say. I'm not seeing historically high defections to in-house jobs like we did in 2001 and 2006-07, the last two rounds of raises. My hunch is that Cravath's dramatic decision to cut associate headcount from 2010 and 2011 has accordingly reduced the number of midlevels in 2016. Combined with their normal level of attrition and their reluctance to hire lateral associates means they need to raise salaries to increase retention. That's a Cravath-specific solution to a Cravath-specific problem though. All other firms are just copying.

Nah. Cravath isn't unique. They have the same incentives and disincentives as their peers: Simpson, DPW, Cravath, or S&C each could have made such a move (and each have in the past decade at some point) and forced the market the same way, since they all operate under similar conditions and react to the same forces, whether it be mid-level attrition, recession, or another industry-specific variable. This only looks like "mover" and "copy-er" on the surface because one of a number of highly profitable peer firms acted first, but it could have been any of them and the same activity would have resulted.

[Lexaholik]

Nah. Cravath isn't unique. They have the same incentives and disincentives as their peers: Simpson, DPW, Cravath, or S&C each could have made such a move (and each have in the past decade at some point) and forced the market the same way, since they all operate under similar conditions and react to the same forces, whether it be mid-level attrition, recession, or another industry-specific variable.

I completely agree that they're not unique. The only reason why I singled out Cravath is because they were the one who moved first.

There have been 4 biglaw salary increases in the modern era: (post 2000). The way they come about is pretty standard: One firm raises due to some factor unique to that firm. Then, word spreads like wildfire on the Internet (formerly Greedy Associates board but now ATL). Then, everyone (or nearly everyone) matches.

- Gunderson Dettmer to 125k in 2001
- Quinn Emanuel/Irell to 135k in 2005
- S&C to 145k in 2006
- Simpson to 160k in 2007

Each one of these raises were driven by unique conditions in labor market for associates that warranted the increase. Gunderson was losing associates to dot coms while they were inundated with start up work. Quinn/Irell had an increase in work based out of Socal but had trouble getting credentialed law students to join their relatively unknown firms. S&C and Simpson were losing associates to in house jobs with banks and hedge funds while legal fees in their banking groups were at all time highs.

There is always an underlying supply/demand factor in the associate labor market that drives salary raises.

This only looks like "mover" and "copy-er" on the surface because one of a number of highly profitable peer firms acted first, but it could have been any of them and the same activity would have resulted.

Cravath didn't have to move first. It could have waited until someone else raised, and then matched. Why didn't just wait it out? It would have saved themselves (ie partners) a lot of money.

The answer is that there was probably some factor unique to Cravath that made them say, okay we have to move first.