by Michelle Foster, Founder and Drew Foster, Managing Director — The Foster Group
Changes in associate compensation tend to be cyclical. Every few years, a handful of leading law firms increase the compensation scale. This signals Am Law firms, elite boutiques, and others that it is time to assess their own scales and consider the value of following suit.
After a relatively quiet three years in terms of associate compensation, the cycle has revved up again. This time, however, new developments in the legal field and beyond have resulted in new compensation trends. The ongoing changes, which started in 2021, have been more rapid and far reaching than those in previous cycles. Firms that want to stay competitive in this season should take note of what the leading firms are doing to attract top talent.
The key difference in this compensation cycle
A key difference with this cycle of compensation increase is the rapid succession with which it occurred. During the past two years, leading firms have introduced multiple increases to the scale. Special pay bonuses have also been more prevalent during that time period. As a result, salaries have increased by approximately 22 percent for the most senior associates in less than two years.
Another key difference is related to where these higher-than-normal increases are taking place. Typically, they are centered on major markets. In this case, however, numerous national law firms are paying top dollar for talent in regional markets. This is unique to this cycle and likely related to the increase in remote working arrangements driven by the COVID-19 pandemic.
The key factors driving the increase
At the top of the list of factors driving the present increase in associate compensation is a fierce competition for talent, which experts have come to describe as a pay war. There are currently incredibly high levels of competition amongst firms seeking to recruit and retain attorneys across multiple practice areas. Historically, the legal market experiences specific practice area demand that ebbs and flows as it relates to the broader economy. This market has seen sustained demand across multiple practice areas and attorney levels.
One example of an area where the pay war has had an impact is Mergers and Acquisitions and Private Equity markets. These are red-hot areas, with tremendous demand and competition for corporate attorneys, particularly more senior associates. Countless attorneys in this practice area have recently moved their careers forward in meaningful ways, whether it was elevation to Partnership or the ability to nearly double their compensation package.
Another factor that comes into play in the compensation picture is an increase in workload and responsibility. The pandemic brought with it a whole new set of legal questions and scenarios, some of which involved a high level of complexity. The need for legal guidance was felt from small businesses to the largest multinational conglomerates. When combined with demands prompted by a strong economy and booming deal market, these factors resulted in many firms experiencing a sustained rise in demand for their services.
This surge in demand resulted in many attorneys working tremendously hard without significant breaks, and exceeding their billable requirements. While the legal profession has historically been one in which attorneys expect to work long hours, the recent increase left many attorneys feeling that greater compensation is not only welcome, but appropriate.
One factor that should not be viewed as playing a significant role in the increase is the cost of living brought on by ongoing inflation in the US. The lockstep model utilized by many firms means increases are structured, well-defined, and connected to internal — rather than external — developments. Because lawyers tend to be familiar with a structured compensation model, cost of living increases are generally not expected nor granted.
The keys to effectively recruiting in this market
As more firms choose to keep pace with the increases, a variety of other factors become important for those who hope to win top talent. Firms that will excel at recruiting are those who will focus on understanding and acknowledging the professional and personal goals of the candidate, and effectively describing how joining the firm will help the attorney to achieve those goals.
Areas of interest that firms can highlight include:
- Flexibility in terms of work from home policies.
- Paths to equity partnerships.
- Access to mentorship.
- Flexible billing rates and alternative fee arrangements, both of which can make it easier for partners to build and grow their practice and maintain a satisfied client base.
- Robust support for marketing and business development.
An effective recruitment process is also important in today’s competitive market. Firms that excel in this area have an efficient process that is handled by an effective recruiting department, who are diligent in selecting interviewers who are strong ambassadors of the firm. They paint a picture of an inviting culture and the value proposition their firm provides to incoming laterals.
Overall, the firms that end up with the most talented recruits — whether they are attorneys just starting their careers or those making lateral moves — will be those who can effectively communicate that the attorney’s skills and unique talents will be valued. Competitive compensation speaks loudly in that area, but it is not the only factor. Valuing the full range of career concerns will help firms to position themselves as the best option in this highly competitive market.
Michelle Foster is the founder of The Foster Group, a former litigation partner, and veteran legal recruiter with 20 years of experience. Drew Foster is the Managing Director at The Foster Group, a Senior Legal Recruiter specializing in the placement of Partners and Associate level attorneys.