On the Future of Associate Pay

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Back in April, we voiced some disbelief over the fact that, deep in the throes of the recession, law-firm managing partners were still waiting for their peers to go first before slashing first-year associate salaries. We figured that once one firm slashed to $145k, a whole bunch would follow. And from there, who knew? As one firm leader told the Philly Legal Intelligencer: “I could see $145,000 go to $100,000 in a nanosecond.”

But here we are, some six months later, and it hasn’t happened. Granted, a few have dipped to $145k, with a couple more going to $125k. But the race to $100k (or lower) just hasn’t happened.

Why not? It turns out that firms feel more strongly about staying at $160k than we’d thought. They’ll fire associates, sure. And they’ll do just about anything to the salaries of mid-level associates, short of drop them below $160k. But it seems too many fear the recruiting issues that might stem from dropping below $160k. The floor is more solid than perhaps we’d appreciated.

For a nice look at this phenomenon and other associate-salary issues, check out this article, from the Recorder’s Petra Pasternak.

Pasternak predicts that, going forward, the trend is only going to deepen and accelerate: while first-year salaries may stay constant across the board (after taking perhaps another slight hit), the pay for midlevels (and the systems for paying midlevels), will vary widely from one firm to another. Writes Pasternak:

Just a year ago, lockstep pay made one firm look just like the next , with a single market rate for each associate class. This year, several firms are paying the old, high standard: Third-years get $185,000, and fifth-years $230,000. But at many others, third-years now get $170,000 and fifth-years earn $210,000 — in many cases, the result of salary freezes, which have left many associates earning the same amount this year (and perhaps in 2010) as in 2008.

Some industry experts predict the market will blur further as more firms shift from lockstep models to merit-based compensation. At the same time, industry experts expect more firms to pare first-year pay back to $145,000.

But the biggest change for associates, and which is already underway at Howrey and coming to Orrick, among others: merit-based pay. “You’ll see far more variation going forward, so the starting salary becomes far less important and it becomes about how fast you can advance,” said Hildebrandt’s Lisa Smith to the Recorder.

Merit-based pay. Oy. We feel for you, associates. One of the best things about associate-ship was despite the grueling hours and often mind-numbing work, your paycheck wasn’t a source of stress. Now, it will be. Have fun.