11/16/2009 09:00:27 PM EST
Associate Salaries--How Low Can They Go?
Firms have been cutting salaries recently, and some have been laying off attorneys for some time now, but it would be interesting to know how firms are deciding how many people to cut or how much to cut salaries, given that it seems impossible that they have enough information to make well-informed decisions. Some firms seem to have overcorrected from the bubble by over-firing (based on information conveyed during interviews this year). On the salary side, it would seem reasonable to assume that the supply of starting lawyers at the caliber that big firms want and need will reach a point of inelasticity.
An article in New York Lawyer online on November 5, 2009 (Experts: Lower Associate Pay Is Here to Stay, by Meredith Hobbs, available here) reported that Altman Weil consultants working with law firms believe that law firms should knock pay scales back to 1998 levels. To look at what that means, we can look at the National Association for Law Placement’s (NALP) historical statistics, available here. In 1998, the starting associate salary in New York was $87,500. Between 1998 and 2007 that number jumped 88 percent, to $160,000. In the same time period, the percentage increase was comparable for firm jobs in Chicago, Los Angeles, and Washington, D.C. Inflation during that period was about 27 percent. Given that inflation rate, going back to 1998 pay levels would mean starting annual pay of $111,125 in New York.
Yet firms haven’t gone that far. The important additional piece of information to remember is that, over the same period, law school tuition and debt have increased. There is some significant number of students who go to a firm to pay off loans. If firm salaries go low enough that it will take significantly longer to pay off loans while working at a firm, students may decide to take other options. This would presumably be especially true at schools with strong loan repayment assistance programs. For some people the attraction of non-firm jobs is that they are more personally fulfilling; for others, the draw is that they are not dehumanizing and all-consuming. Firms will continue to do the same work, so if they want to bring their salaries closer to public interest levels, one way they might continue to be competitive would be to make the job a healthier and happier one.
Some firms made mistakes in firing, thinning the ranks of potential partners and throwing down the drain years of training investment. Salaries have become ridiculous and probably do need to change to improve financial stability and viability, but firms will need to evolve in a lot of other ways alongside salary changes.
Post written by members of the Stanford Law School organization, Building a Better Legal Profession.