Keep Your Money

The buzz in the halls, particularly among the junior set, is that at least one Atlanta firm has raised associate salaries by somewhere in the neighborhood of $10-15K. Now everyone is wondering if other firms, and particularly our firm, will follow. This would be a second major salary increase, on the heels of a hefty salary hike at the end of 2005/start of 2006. I have a serious message for those who ask me about raises: you don't really want this.

When I was a 3rd year law student in Boston in 2000, incoming associate salaries at the major Boston firms including the one I was about to join jumped from $90K to $125K in one major shift. (Actually Testa was paying $140K to first year associates but with no bonus; the $125K was in theory supposed to include a potential up to $20K bonus on top, based upon merit.) Many people outside the legal world do not know that major law firms have standardized associate salaries that progress in "lockstep"--meaning that every single first year makes $125, every second year makes $130, etc., all the way up to eight or even ninth year when you really should be hoping to make partner and be taken off the lockstep ladder. Because salaries are paid this way, and everyone graduating from law school or transferring firms wants to make as much money as they can, basically all the big firms in a particular city pay the same amount. When one firm raises salaries, the other firms in the city inevitably follow out of a belief that failing to do so will cost them the primo associate talent. Thanks to the rise of the internet, in 2000 the "Greedy Associates" messageboard came about and resulted in previously unheard of information sharing between law firm associates about who had gotten raises and which firms were being cheapskates. Now matching salary raises is considered all but inevitable, as the dominoes fall one by one.

I tell you all this to set up the background of what happened in 2000 AFTER we started earning all that money.

Most law firms will tell you candidly that they expect to lose money on the first few years of a new associate's practice. There are massive training costs, a lot of their time is written off because they are inefficient or because it is an easy way to make clients happy, their billing rates are lower, and the overhead of hiring a new attorney and paying them a massive salary and benefits and giving them a nice office and a secretary and bar admissions and moving expenses and bar review fees, etc. makes it virtually impossible for a young associate to be profitable. Instead the firm invests in its young associates, hoping to make them into skilled and efficient (and high billing) midlevel associates who will then become profitable, continue to remain ever more profitable, and finally become partners/shareholders who are bringing in business in exchange for a share of the profits. That, or they are used up and spit out when they stop being useful to the firm, after they have given blood, sweat, tears, and years' worth of lost sleep to the firm. This has always been the way, even before salaries went nuts.

But seeing a 40% salary increase in just one year changed this calculus a great deal. Now, firms weren't as willing to make the investment in associates whose ultimate profitability and value was questionable at best. If the firm had a slow year, those not-yet-profitable associates' massive salaries would make them easily expendible dead weight, instead of a group of people to be invested in and nurtured and grown into profitable lawyers.

And so it happened in Boston in 2001 and 2002. The stock market collapsed, first NASDAQ and then after 9/11. When I started in September of 2000 I was already hearing from the rising second year class about how nobody was getting a bonus because nobody in their class had hit target. I was hearing about a summer when everyone suddenly had their work dry up, and after taking the vacations they'd been waiting for all year they suddenly realized they needed stuff to work on...but it wasn't coming. The arrival of 30 incoming associates did not help this work shortage, and we were downright bored in my first year. And then, as I completed my first year of practice, 9/11 happened and the only industry that had been shuffling any work our way--insurance and reinsurance--felt the bottom drop out. There were no IPOs for months. Deals and cases were put on hold. And the puddle of available work, already down from the lake a firm likes to have, became a wet spot at best.

Testa Hurwitz, the Boston firm that raised to $140K in 2000, no longer exists. They shed massive numbers of associates in layoffs, then through the death of their managing partner and a confluence of other factors they ultimately dissolved. So too Hill & Barlow, and Peabody & Arnold. Countless other firms (mine included) shed up to 20% of their associates in 18 months. At my firm, an incoming class of 30 was whittled down to 10 in under 2 years, with approximately 10 of those departures being of the layoff variety and most of the other 10 being of the "I'm leaving because I'm smart enough to sense I'm about to be laid off." It was a really sucky time to be a young associate with not much experience and hundreds of other young associates scrambling for the same limited set of employment options. And it happened because of not only an economic nuclear bomb that rendered us almost useless, but also those damned salary increases that made us all more expendable than any other expense the firm had.

What I wish I could explain to the young, eager, and oh so greedy baby lawyers salivating today at the thought of another $15K a year is that it's simply not worth it. Billables expectations go through the roof, when they're already sky high to begin with. The margin for error and for learning on the job drops sharply, and just one or two blunders and a marginal annual or midyear review can be enough to put you on the chopping block. The partners want to maximize their profits above all else, and if things get slow like they did after 9/11 and the 2000 NASDAQ crash, they will find a bunch of overpaid associates with far too little work to justify their continued employment just begging to be laid off.

I'm sure it's rare to find anyone, especially a lawyer, advocating against getting a raise. I won't be sad if the money comes, but I will be wary. I will know what comes with it. And I will know that ultimately the changes won't be worth being slightly more overpaid. And if things turn south again, I will know that we are all expendable and that there is no more margin for error left.