In my post, Why Aren’t You Practicing Law, I stated that there are many more issues that plague both legal education and legal practice and asked you to stay tuned as I share my business and human resources management oriented opinions about “the business of law.” I also mentioned counterintuitive practices or what I have termed “illogical law” practices. Well, recently, the ABA Journal published an article entitled, Some law firms match Milbank’s $190K starting pay for associates. [1] Yes, you read that correctly – starting pay of $190,000 per year.

Next, consider the following:

• Associate roles are entry-level, attorney positions; so, many (and maybe the majority) have no legal experience beyond summer associate roles;
• For a significant percentage of these associates, this is the salary for their first, full-time job;
• The Census will release the next report on 2017 incomes in September 2018, but the median household income in the US 2016 was $55,322.[2]

Also, consider the following article, which was published after the announcement of the salary increase, entitled, ‘The Tone Deafness Is Astounding’: Clients Unhappy About Milbank Associate Raise Announcement. [3] This article included several direct quotes from in-house leaders, who didn’t pull punches in their evaluation of this development. However, the feedback from a law department operations professional really highlighted the most important issues and implications of this practice. Following are few quotes taken from this individual’s comments:

  • It is not surprising that a firm raises the bar on first-year compensation to attract the best and brightest J.D.s from top schools. Law firms often compete for the top-quality graduates from the top law schools so it follows that other firms will at least match Milbank’s offer as Milbank did after Cravath raised the bar on the Class of 2015 first-years to $180K.
  • [T]his practice also raises the costs for law firms. Corporate law departments typically refuse to pay for first-year associates because often these new recruits have no experience and time spent on matters essentially amounts to training.
  • The costs for the firms rise and you can bet the firms are seeking to recover these increased costs through higher rates. It would be wise for firms to message to the market how they intend to fund these increased costs and potentially balance this message with innovation that is occurring at the firms aimed at reducing costs and creating efficiencies.
  • If Milbank were one of our firms, I would proactively congratulate them on their strategy to attract top talent and ask for their strategy to fund their talent acquisition with commentary about keeping rates flat this year.
  • The shocking part of this message is that first-years typically have no experience and their base salaries are extremely high.

That last quote really summarizes the key issue that I’d like to discuss in this post, but let me reiterate. Individuals with no experience are being paid $190,000 per year! Consequently, as a former human resources professional with a Compensation Management Specialist Designation, my follow up question, is “WHY?” In my opinion, this “illogical law” practice makes absolutely no sense for a variety of reasons. Following are a few of those reasons:

1. The quotes in the article mentioned above make it clear that the law firms’ clients aren’t happy about this development.

2. I’m not aware of any other profession that pays either entry-level positions or individuals with no experience six-figure salaries. Someone might offer professional athletes as a counterexample, but I argue that the example is not comparable. By the time a professional NBA or NFL player lands a six or seven figure contract, he probably has over a decade of amateur experience and has clearly demonstrated that he can likely perform his job at an exceptional level. At the time of hire, most new associates have only proven that they are skilled at taking law school exams, socializing with other law firm personnel during a summer clerkship, and passing the bar exam.

One of the justifications that law firms offer for these exorbitant salaries is that they are necessary “to attract the best and brightest J.D.s from top schools.” I also question this rationale. Consider the data, arguments, and proposed solutions in the following excerpts from an unpublished article I wrote during law school entitled, Paradigm Shift: Applying Human Resource Management Theory to the Large Law Firm Recruiting and Selection Process.

The high associate salaries, which “are now a standard fixture of the elite law firm world” [4] and overwhelmingly exceed salaries in most entry-level jobs, almost guarantee that a large number of students will express interest in these firms. In fact, “many students state that the high salaries paid by corporate firms are the primary reason they choose jobs in this sector over what they consider to be more rewarding work in government or public interest practice.” [5] This compensation strategy or lead pay policy, accomplishes the recruiting objective of attracting a large number of applicants; however “a concern is whether the additional pay attracts and retains the best—or merely the most—applicants.” [6] “In a fully integrated, strategically aligned system for managing human resources, recruiting activities are developed with a full appreciation for how they may affect other parts of the system, and how other parts of the system may affect recruiting activities.” [7] Considering the discussion of widespread job dissatisfaction and high attrition rates, along with other negative consequences of this strategy detailed below, this compensation driven recruiting strategy is misguided, though on the surface effective.

. . . The compensation driven recruiting strategy yields large numbers of applicants; consequently, both to deter some, interested law students from applying and to weed out a significant portion of the students who express interest, law firms use traditional and seemingly objective indicators of high academic performance, such as law school reputation, class rank and law review or journal credentials, to reduce the pool of students they invite for interviews. [8]

“Like many other aspects of an organization’s approach to managing human resources, total compensation can facilitate (or interfere with) achieving many different strategic objectives.” [9] For example, the ever-spiraling increase in salaries is one of the key reasons that law firms require associates to bill so many hours, but the fact that associates must bill these hours is one of the key reasons that job dissatisfaction is widespread and attrition rates are high. Therefore, the first change law firms should make is to reduce the salaries of entry-level associates. This will be a bold step, that will introduce additional recruiting challenges, but as a part of an integrated human resource management system, it will reap the law firms substantial tangible and intangible rewards. Labor costs will immediately drop due to this reduction, and the lower billable hour requirement that results should help increase attorney job satisfaction by providing more work-life balance and, in turn, reduce turnover costs by eliminating the $200,000 to $500,000 average cost of each departing lawyer.

To determine the optimal salary level or the amount salaries can be reduced and remain competitive in the relevant labor market, law firms should conduct and/or purchase pay surveys to determine exactly how much of a premium they are paying over other comparable entry-level positions. Additionally, a thorough financial analysis will also show exactly how much salaries must be reduced to achieve a more managing billable hour requirement. A possibility also exists that finding the correct balance between billable hours and salary levels will lead to a competitive advantage because if turnover and training costs for a firm are significantly reduced, the firms’ partners could potentially maintain the same profit margins while reducing their bill rates to a level that might attract more business. In summary, a firm’s compensation strategy is a very important piece in both the human resources management and overall competitive business strategy, and determining the optimal adjustments and making these changes will likely result in significant rewards.

Reducing compensation levels will make the recruiting process more difficult because some of the most sought after students will always choose the additional income over more work-life balance. However, along with this change, law firms must also execute a communication plan, which explains the reasons for and benefits of the salary reductions. Additionally, the firm should emphasize the other reasons that students choose big firms – training, interesting and challenging work, the chance to work with exceptionally talented colleagues, and desire to keep future professional opportunities that require experience at a large firm open. [10] Furthermore, to offset the salary reductions, firms can offer non-monetary incentives that attorneys consider effective, such as formal career development and training programs, flexible work schedules, and non-cash recognition. [11]

To conclude, I hope the leaders in the profession will consider the information I’ve presented in this post. A strategic change is necessary, and the “illogical law practice” of paying entry-level employees $190K annually really isn’t a sound business practice.

[1] Weiss, D.C. (2018, June 17). Some law firms match Milbank’s $190K starting pay for associates, ABA Journal, Retrieved from: http://www.abajournal.com/news/article/Some_law_firms_match_milbanks_190k_starting_pay_for_associates/?utm_source=maestro&utm_medium=email&utm_campaign=weekly_email.

[2] U.S. Census Bureau. (2017). Quick Facts United States. Retrieved from https://www.census.gov/quickfacts/fact/table/US/INC110216.

[3] Spiezio, C. & Clark, D. (2018, June 8). The Tone Deafness Is Astounding’: Clients Unhappy About Milbank Associate Raise Announcement. Corporate Counsel. Retrieved from https://www.law.com/corpcounsel/2018/06/08/the-tone-deafness-is-astounding-clients-unhappy-about-milbank-associate-raise-announcement/?slreturn=20180614234838.

[4] Wilkins, D.B. & Gulati, G.M. Why are There so Few Black Lawyers in Corporate Law Firms” An Institutional Analysis, 84 CAL. L. REV. 493, 530 (1996).

[5] Wilkins, D.B. & Gulati, G.M. Why are There so Few Black Lawyers in Corporate Law Firms” An Institutional Analysis, 84 CAL. L. REV. 493, 532 (1996).

[6] Wilkins, D.B. & Gulati, G.M. Why are There so Few Black Lawyers in Corporate Law Firms” An Institutional Analysis, 84 CAL. L. REV. 493, 532 (1996).

[7] Jackson, S.E. & Schuler, R.S. (2006). Human resources through strategic partnerships. Thomson South-Western.

[8] Wilkins, D.B. & Gulati, G.M. Why are There so Few Black Lawyers in Corporate Law Firms” An Institutional Analysis, 84 CAL. L. REV. 493, 547 (1996).

[9] Jackson, S.E. & Schuler, R.S. (2006). Human resources through strategic partnerships. Thomson South-Western.

[10] Schiltz, P.J. On Being a Happy, Healthy, and Ethical Member of an Unhappy, Unhealthy, and Unethical Profession, 52 VAND. L. REV. 871, 897 (1999).

[11] What Works Now with Retention? 05-2 Compensation & Benefits for L. Off. 8 (Feb. 2005).