Across the pond from New York our friend Alex Novarese, editor in chief of Legal Business, just published his commentary Associate pay smoke screen: it’s fooling no-one, which notes “the emergence over the last two years of suspiciously co-ordinated attempts by London firms to obscure what they are paying even their most junior lawyers [with the latest] run of pay hikes washing through New York and London.”
Alex offers a simple explanation:
The reason for this reticence is plainly obvious: UK firms are increasingly unable to compete with more profitable US rivals and are attempting to obscure the fact.
Nor, for what it’s worth, is Alex optimistic about City firms soon being able to close the gap, particularly “with sterling likely to remain on the floor for the foreseeable future.” Rationally, and as the title of the piece implies, Alex counsels candor and criticizes “City leaders look[ing] evasive” and thinks “getting coy on the numbers” is self-defeating. I would only double down on this: Getting coy about facts always tends to be so.
But I’m sitting in Manhattan, not the City, so what moral if any might we draw over here?
I’ve had a theory about our industry’s episodic associate pay spikes for awhile, and Alex’s piece has prompted me to spit it out.
It’s a thumb in the eye of the less elite firms by the elite.
Consider the instigator of every associate pay hike of the last few decades:
- Most recently (2016), it was Cravath to $180,000 for first years–historically it’s Cravath, and we love our customs.
- Before that (2007), it was the equally elite Simpson Thacher to $160,000.
- In 2006 it was Sullivan & Cromwell to $145,000
- And the bump to $125,000 (from $95,000), while not formally instigated by a New York white shoe firm, came out of the red-hot Gunderson Dettmer of Menlo Park at the very peak of the dotcom era, December 1999 (trying to stem defections to startups). But it didn’t get legs until in the industry until Davis Polk’s decision to match in February 2000, covered by The New York Times no less, that made the new high-water mark mandatory in capital markets centers and elsewhere.
The immediate question in the wake of any of these new-high spikes is, “Who’s going to match?” This is more than the tired old obsession of the late and largely unlamented “Greedy Associates” forum (RIP ca. ~2009). The question has real economic teeth, which is why you’re reading about it here.
So here’s my theory: After every new high-water mark in associate pay, there are two groups of firms whose reaction you can foretell with certitude: The truly, solidly, unquestionably elite will follow with 24-72 hours, an innumerable host of firms are never going to follow in your lifetime or mine, and most readers could name the members of the first group and know who’s in the second group in their sleep. These are, don’t take this the wrong way, the trivial cases.
Then there are the other firms, in the middle. For them (and you know who you are), the question of whether to follow, and if so in which offices (New York? London? Washington, DC? California? Texas? everywhere?) is open to genuine, and understandable, debate. Without having been privy to any of these discussions, one can imagine the discussion is framed around one camp determined to match “the going rate” [because, subtext, we’re an elite firm too and need to run with the Big Dogs] and another camp because, frankly, it’s not easily affordable [and, subtext, who’s kidding whom here?].
These are the firms facing a non-trivial decision, and each of their two clear options will involve sacrifice. Matching the going rate will salvage their appearance of prestige in the marketplace, but at meaningful cost to partners. Just how costly to individual partners depends on variables that are beyond the scope of today’s column, but they would include baseline profitability [higher is obviously better], leverage [lower is better], clients’ policies on paying for junior associates [flexibility is better], the geographic center of gravity of the firm’s lawyers [if you’re not going to match everywhere, then fewer in major metropolitan areas is better], and on and on.
Meanwhile, jumping off the wagon and declaring the going rate preposterous will be interpreted as a serious blemish on the firm’s reputation and will kneecap associate recruitment from the most prestigious schools–precisely those law students who have options–leaving the firm with candidates who did not receive an offer from firms farther up the food chain.
I’m here to offer another idea.