The $190K Question: Will Clients Balk at Rising Associate Salaries?
Winston & Strawn and Proskauer have already matched Milbank's new pay scale. As others debate whether to join them, clients may not all be content to sit on the sidelines.
June 05, 2018 at 05:50 PM
3 minute read
The beginning of another stampede of associate salary raises is underway, with Winston & Strawn and Proskauer Rose already matching the new associate pay scale set this week by Milbank, Tweed, Hadley & McCloy.
It's only a matter of time before others follow suit. But as law firm leaders debate the merits of matching a salary scale that starts at $190,000 for first-year associates, clients are anxiously watching the process, and wondering how much of the increases they will have to bear.
“I think a lot of clients, when they read about this, are going to scratch their heads,” said Kent Zimmermann, a law firm management consultant at the Zeughauser Group.
“Clients frequently say that they have a hard time paying Am Law 100 associate rates, especially for a first- and second-year associate that they feel don't have a lot of experience,” ZImmermann said.
The increases come at a time when many big law firms, especially near the top of the Am Law 100, are enjoying welcome revenue and profit growth. But they also come as corporate legal departments are applying more scrutiny to how their outside firms operate.
“Sophisticated clients recognize that the price of legal services is comprised of things including salary, overhead and firm profit,” said Jason Winmill, a managing partner at ArgoPoint who advises Fortune 500 corporate legal departments. If firms expect their clients not to complain if rates go up and partner profits and margins don't budge, they should think again, he suggested.
Winmill also noted that law firms “often point to inflationary pressures as a main driver of cost increases.” But if they do cite that rationale for boosting salaries, some clients may also press them on their math.
Milbank is proposing a $10,000 increase on a $180,000 base salary, which is a 5.6 percent increase over two years or a 2.8 annual increase. Over the last two years, the inflation rate in the U.S. hovered around 2.1 percent.
That makes this week's salary increases 0.7 percentage point above the national inflation rate, which could raise a red flag for clients, Winmill said.
“In-house clients do require premium-price legal services, yet they do remain under high levels of scrutiny for the costs of these premium services,” he said. “When they see cost increases from outside law firms that are growing faster than inflation and faster than their own sales growth, they have an obligation to review and scrutinize these costs.”
Not everyone expects a backlash, however. Jay Perry, owner of North Carolina-based legal staffing firm Perry Placement, said many clients are unlikely to bat an eye at the latest increases, citing the health of the U.S. economy and the increased demand for legal services.
“There's so much work right now, [and] the top-tier firms are busy, especially on the transactional side,” said Perry, who works with Am Law 50 firms on attorney placements.
“These clients just want the work done,” he said.
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