The unexpected move by Milbank LLP to offer $10,000 raises to its associates is probably going to make it difficult for some large law firms to decide whether to match. The announcement of the move came after a difficult year for the sector, which included record client fee increases, associate layoffs, a reduction in lateral hiring, and the collapse of a law firm. Several businesses have delayed the start dates for new associates. Among them is Cooley LLP, which is giving $100,000 to associates who consent to starting their careers one full year later.
“Salary increases across a broad group of firms are not supported by the fundamentals,” stated Zeughauser range legal industry consultant Kent Zimmermann. “Many companies have more employees than they require, and hiring is down,” he stated. Milbank opted not to respond. In a company email, its chairman, Scott Edelman, stated that the compensation increases were being driven by “high levels of activity” throughout the company.
Milbank’s Decision Regarding Salary Raise
Although they haven’t announced it publicly yet, other companies are anticipated to match the salary increases. It has long been a given that businesses are racing to match one another in terms of associate compensation, including wages and incentives. But unlike the hiring frenzy of a few years ago, when M&A activity reached an all-time high and there weren’t enough associates to go around, Milbank’s decision comes amid a slump for many firms. According to Zimmermann, the choice to match will ultimately result in “an unnecessary increase” that puts pressure on less successful businesses.
Range Of Salary Raise
“Most firms don’t need it, and it will be highly costly for the industry,” he stated. What’s Ahead: As anticipated, Milbank stated in the statement that it would adhere to the same yearly bonus structure that Big Law firms have been using for the previous two years. The scale varies based on seniority and goes from $15,000 to $115,000. The decision by the company to raise associate pay is likewise “a bit of a surprise,” according to Kate Reder Sheikh, a Major, Lindsey & Africa legal recruiter.
“It’s encouraging that they have the resources to commit to this,” Reder Sheikh remarked. “Basis pay increases are more difficult to reverse than bonus structures.” Summer Eberhard, a legal recruiter at Major, Lindsey & Africa, said of the pay hike: “The salary increase makes a bold statement that while some firms continue to struggle, not all are similarly situated.” She noted that a lot of companies are increasing their corporate and other practices, which is a positive indication that the market might be starting to recover.
Milbank’s New Compensation Scale
For first-year associates, Milbank’s new compensation scale is comparable to the previous one, with inflation adjustments made. According to a recent Thomson Reuters research, law firms’ billing rates increased 7.3% during the first half of 2024 marking a new high point for their growth. According to Zimmermann, there may be greater client opposition if rate increases are combined with compensation increases. According to him, since the top of the associate ladder ends at the bottom of the nonequity tier, the hikes will also push up remuneration for nonequity partners at many firms.
Nevertheless, a lot of companies will match the Milbank hikes because they are all vying for top personnel, according to Joshua Holt, the creator of Big Law Investor, a website that tracks bonuses and compensation at large legal firms. According to Holt, “they could not tolerate having a firm that pays more money, or a group of firms that pay more money than their firms.” Holt continued, “There may be more raises in store for associates with at least a few years of experience.”
Midlevel and Senior Associates
When companies change their pay scales, midlevel and senior associates typically receive larger increases because their work can be invoiced to clients at a higher rate than that of their junior counterparts. According to him, Milbank’s $10,000 pay increases represent a 4.4% increase for first-year associates and a 2.4% raise for those in their eighth year.
Early in 2022, Milbank was the first to raise associate salaries. Then, at the top of that scale, came Wall Street’s longtime leaders in compensation, Davis Polk & Wardwell and Cravath Swaine & Moore, who raised the pay scale for associates in their fourth year and beyond.