I don’t have the grey cells or, frankly, the spare time to keep track, blow by blow, of the Great Associate Comp Wars of 2022, but fortunately Above the Law does and has.  From January 20th of this year, when Milbank kicked off the festival of riches arms’ race, through March 8th  (Sheppard Mullin joining the latest parade of bump-ups), ATL lists no fewer than 202 stories of firms calling and/or raising whatever the daily “going rate” is for elite firms.  By my quick mental arithmetic, that’s about five per day.

And I have been bombarded by legal-beat journalists from highly respected Mainstream Media outlets asking for my thoughts on this merry-go-round.  It’s hard to open the page tab of a legal media site without seeing their regular daily installment in this soap opera.

We’re going to treat this story a little differently here at Adam Smith, Esq.  Without further ado, our one and only take on this phenomenon—barring something unforeseeable like the cycle imploding in on itself.

  • “Just when you think we’ve seen the peak in associate comp, you’re wrong.”  This has been true for 40+ years and unless/until BigLaw’s fundamental business model changes, will remain the case.  Hardworking and capable associates from T14 law schools are an extraordinarily scarce commodity and as we know from Econ 101 scarcity increases price.
    • Aggravating factor:  There’s no real “substitute” (economic sense) for these associates, so no pressure relief valve on that front.
  • The latest round of associate raises targeted the midlevel group (say years 3 or 4 to 7) who are the most valuable.  This demonstrates at least a modicum of strategic savvy, or at the very least financial sanity, to the raises.  Midlevel’s:
    • Know what they’re doing
    • Clients are happy to pay for them (a/k/a high realization)
    • They’re the “lieutenants” in the field really getting stuff done, running deals on a day to day basis, etc.
    • And did we mention that at this point in their career they have copious, attractive, and lucrative alternatives to BigLaw?
  • One could argue (as the always astute Jae Um does, loudly and persuasively) that in fact this latest round of increases is well-designed and is a rational response to a superheated corporate deal market coupled with the “money is not the object” purchasing dynamic when clients have matters demanding one of the world’s handful of global elite law firms to mount an all-hands–on-deck push.

And that in a nutshell is why the dozen or so truly elite global firms will never blink about matching “the going rate.”  It’s part of the cost of operating in that very thin air, and it’s not negotiable.  This reality is also, to me, not very interesting: You match because all your peers match so you too have to match.  A closed loop with no off-ramp.  Not much more to be said.

Inevitably, a question arises about whether this is “sustainable:”

For the truly elite firms, it’s existential not to be in these precincts, so for as long as these firms intend to remain going concerns, they will find a way to sustain it: Primarily by raising associates’ hourly rates and expecting (demanding) that they bill more hours.

For “the rest” of the AmLaw 200 firms, it shouldn’t be an issue because they’re not on this merry-go-round.  The problem is that an alarmingly  high proportion of them think they are on that elite carousel and they’re at risk of bending their P&L’s to the breaking point if they conceitedly follow suit.  Associate comp and benefits, it evidently bears repeating, are a fixed and not a variable expense, and shouldering this steep spike in that large fixed-cost line item cannot be undone quickly without severe, perhaps irretrievable, reputational damage.  Don’t say you haven’t been warned.

On the other hand, the associates getting these raises may in the slightly longer run find they’ve struck a Faustian bargain:  Once demand from clients comes down, some of the less productive associates may find they’re too expensive and they will need to start looking around.  (One’s instinctual reaction to that prophecy of a crackup down the road, including mine, is empathetic dismay; but may I hasten to add that someone whose top line of their resume reads “senior/midlevel associate at [say] Davis Polk” will have a very short job search indeed before they find something prestigious, lucrative, and promising a lifetime career road ahead.)

Still in all, there’s one glaring, new, and unwelcome reality to the current comp war arms’ race:  Attrition has never been higher, and it shows no sign of slowing.

Here are the numbers:


Leopard Solutions data: Adam Smith, Esq. graphic

If higher comp was meant to encourage associates to stick around, it’s not working.

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