By Dan Roe | September 12, 2024 at 05:00 AM
Midlevel associates say below-market compensation may cause them to leave, especially when billable hours match expectations at better-paying competitors.
What You Need to Know
Midlevel associates voiced their dissatisfaction with below-market compensation, particularly at firms with billable expectations near 2,000 hours, in a recent American Lawyer survey.
Although more-profitable firms are paying higher salaries and bonuses, firms with lower profits are paying associates a higher percentage of the revenue they bring in.
Associates don't command as much leverage as they did a couple years ago, but recruiters said they continue to move plenty of associates up-market for higher compensation.
When it comes to associate compensation in Big Law, there's the math and then there's the market.
The math indicates that the highest-paid associates are actually getting paid the least on a proportional basis. While rising profits per partner have no ceilings when elite firms have a great year, lockstep salary increases and bonuses are finite.
In contrast, associates who make less than top-of-market compensation tend to take home a greater percentage of the revenue they generate than peers earning market compensation, according to an American Lawyer analysis of total compensation, billable hours, hourly rates and realization rates from a recent survey of midlevel associates and the 2024 Am Law 100 report.
Too bad associates don't care about the math, or the fact that their hourly rate may be $400 lower than that of a peer who earns market compensation at a firm across town. Hours are hours, after all.
"Associates will go to other firms (or the government, or in-house) so long as we pay the least in the area and have the highest hour requirement," said one midlevel at Shook, Hardy & Bacon. "Lower the hour requirement and perhaps retention will increase."
Shook did not respond to a request for comment on midlevel compensation.
Although the midlevel associate recruiting market isn't as hot as it was several years ago, recruiters like Major, Lindsey & Africa partner Kate Reder Sheikh said associates continue to make moves in the quest for market compensation.
"It's a very common type of placement for people who are either in a smaller market where compensation is less and they're working 'big city' hours, or just people in a city like San Francisco where I sit who are at a firm and they're working market hours but not getting market pay," Sheikh said.
Shook wasn't the only firm with a concentration of midlevel associates who felt they deserved market compensation.
"My colleagues and culture are great, but compensation falls off track after the first couple years, and the disparity grows with each year," said a Dorsey & Whitney associate. "To remain competitive and retain associates, compensation should more closely reflect the market rates."
In a statement, managing partner Bill Stoeri said Dorsey will soon review associate compensation as part of an annual process that occurs during the fall. "While there are many factors and nuances that go into determining what is considered 'market' in specific locations, we consider market data and many other forms of input in setting compensation," Stoeri said, adding that he looked to the review process for the upcoming year.
A midlevel at Foley & Lardner described the firm's "pros" as "Great reasonable clients," but listed "2,000 hour billable requirement for below market midlevel pay" under "cons." Another Foley midlevel said the firm expected the "same billable hours and quality of work as other Big Law firms yet expects to retain good associates by paying well below market rate for mid-levels."
A firm spokesperson said Foley's policy is to treat associates and senior counsel "fairly" and "based on individual performance, competitive with other large firms."
At Kilpatrick Townsend & Stockton, a handful of midlevels said their high billables warranted market compensation. "Increase compensation to be consistent with peer firms, at least in high cost of living cities," said one midlevel.
However, the underlying math indicates that firms like Kilpatrick have less room to move up on compensation than better-paying peers.
Out of a total of 14 Kilpatrick fourth-years who submitted compensation data to the American Lawyer, the median associate compensation was 31% of the median revenue associates generated for the firm last year, according to an analysis of base salary, bonus, hourly rate and billable hour data submitted by the midlevels and Kilpatrick's 74% realization rate (per the 2024 Am Law 100 survey).
A Kilpatrick spokesperson underscored the importance of associates to clients and the success of the firm and noted the firm had recently increased salaries for first-years in "most offices" to the market rate of $225,000.
Meanwhile, the median fourth-year associate getting paid on the Cravath scale receives 23% of the revenue they generate for their firm in compensation, according to the average Am Law 100 realization rate of 81% and self-submitted data from 646 fourth-years who said they were paid on the Cravath scale last year.
Third-year associates on the Cravath scale are paid even worse—on a proportional basis—due to only receiving 21% of the revenue they bring in for firms.
However, the median compensation at Dorsey & Whitney represents 26% of the median revenue generated by third-year associates, according to 14 of them who submitted salary, hourly rate and billable hour data.
Third-years at Dorsey & Whitney and third-years on the Cravath scale posted the exact same median figure for billable hours in 2023—1,950—so hourly rates make the difference. While the median hourly rate for third-years at firms on the Cravath scale is $975, the median hourly rate among the cohort of third-years at Dorsey & Whitney was $475.
How to bridge the gap as talent threatens to leave is a problem for partners, however. Associates, unsurprisingly, care about what's best for them.
"Associates care about their practice area and where they can lateral within it, they don't care as much about the profits of the firm," said recruiter Matt Schwartz, a partner at Garrison & Sission. "They care about what they're being paid, what their lateral abilities are."
The good news for firms that pay below-market for midlevel associates—according to associates, anyway—is that the associates they want to keep may not be motivated by money alone.
"Associates may make a tradeoff if they're billing 1,850 hours and getting a bonus for that and they're in good standing and on the partnership track," said recruiter Michelle Fivel of Hatch Henderson Fivel. "The problem comes when they're billing 2,000 hours and a competitor is also asking for 2,000 hours and paying top-of-market."
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