Milbank LLP’s surprise decision to give its associates $10,000 raises is likely to put some major law firms in a difficult position as they consider whether to match.
The move, announced Tuesday, comes in a down year for the industry that saw record rate increases for clients, associate layoffs, lateral hiring declines, and a law firm collapse. At least a handful of firms have pushed back start dates for new associates, with one—Cooley LLP—offering $100,000 to those who agree to begin their careers a full year late.
“The fundamentals don’t support salary increases across a broad group of firms,” said Kent Zimmermann, a legal industry consultant for Zeughauser Group. “Hiring is down and many firms have more associates than they need,” he said.
Milbank declined to comment. Scott Edelman, its chairman, in an internal email cited “high levels of activity” across the firm as driving the pay raises.
Other firms are expected to match the pay raises, although they’ve yet to publicly do so. The race to keep pace on salaries and bonuses has long been a given, with firms moving in lockstep on associate compensation.
But Milbank’s move comes amid a downturn for many firms, far from the recruiting wars seen a few years ago when M&A activity spiked to an all-time high and there weren’t enough associates to go around. The decision to match will end up being “an unnecessary increase” that puts pressure on less profitable firms, Zimmermann said.
“It’s just not necessary in most firms and it’s going to be very expensive for the industry,” he said.
What Lies Ahead
Milbank, as expected, said in the announcement that it would stick to the same annual bonus scale used by Big Law firms in the last two years. The scale ranges from $15,000 to $115,000, depending on seniority.
The firm’s decision to also increase associate salaries is “a bit of a surprise,” said Kate Reder Sheikh, a legal recruiter at Major, Lindsey & Africa.
“It’s a good sign that they’re in a financial position to make this commitment,” Reder Sheikh said. “It’s harder to walk back base pay raises than bonus structures.”
“The salary increase makes a bold statement that while some firms continue to struggle, not all are similarly situated,” said Summer Eberhard, a legal recruiter at Major, Lindsey & Africa. There are many firms whose corporate and other practices are ramping up and this is a great sign that the market may finally be rebounding, she said.
Milbank’s new salary scale is on par with adjustments for inflation over the previous scale for first-year associates. Law firm’s billing rates have gone up 7.3% over the first half of 2023, setting a new high-water mark for their growth, according to a recent report by Thomson Reuters.
Pairing the rate increases and salary hikes might generate more client pushback, Zimmermann said. The increases are also going to ratchet up nonequity partner compensation at many firms, as the top of the associate ladder runs into the bottom of the nonequity tier, he said.
Still, many firms will match the Milbank raises because they are all trying to recruit the best talent, said Joshua Holt, the founder of Big Law Investor, which tracks salaries and bonuses at major firms.
“There’s no way that they could abide having a firm that’s paying more money or a set of firms that’s paying more money than their firms,” Holt said.
There could be more increases in store for associates with at least a few years of experience, Holt added.
Midlevel and senior associates, whose work can be billed out to clients at higher rates than their junior colleagues, often see bigger raises when firms adjust salary scales. Milbank’s $10,000 pay bumps across the board mark a 4.4% increase for first-year associates, compared to a 2.4% raise for those in their eighth years, he said.
Milbank was the first to increase associate salaries in early 2022. Wall Street’s perennial compensation leaders Davis Polk & Wardwell and Cravath Swaine & Moore then came over top of that scale, increasing the salary level for fourth-year associates and above.
“Will someone like Davis Polk or Cravath change the salary structure for midlevels?” Holt said. “It’s quite possible.”