TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, June 12, 2018

Cravath Sets New High In Associate Salary Race

Cravath (2016)National Law Journal, Cravath Sets New High in Associate Salary Race:

After setting the pace for associate salary increases in 2016, Cravath, Swaine & Moore has surpassed the pay scale set last week by Milbank, Tweed, Hadley & McCloy. ...

Cravath’s new associate base salaries, effective as of July 1, are as follows:
Class of 2017 — $190,000
Class of 2016 — $200,000
Class of 2015 — $220,000
Class of 2014 — $255,000
Class of 2013 — $280,000
Class of 2012 — $305,000
Class of 2011 — $325,000
Class of 2010 — $340,000

The firm is also doling out special bonuses akin to those announced last week by Simpson Thacher & Bartlett. These midyear bonuses will be paid out on June 29.

Class of 2017 — $5,000
Class of 2016 — $7,500
Class of 2015 — $10,000
Class of 2014 — $15,000
Class of 2013 — $20,000
Class of 2012 — $25,000
Class of 2011 — $25,000
Class of 2010 — $25,000

National Law Journal, Some Law Firm Staff See Pay Gap Widen as Associate Salaries Soar:

While associates at some of the country’s largest law firms have enjoyed substantial pay raises twice in the last two years, some legal support staff say they are waiting on raises of their own.

https://taxprof.typepad.com/taxprof_blog/2018/06/cravath-sets-new-high-in-associate-salary-race.html

Legal Education | Permalink

Comments

This is not good news for schools outside the top 10-15. At some point AMLAW 100-250 firms will decline to follow these salary increases. When that happens, they will no longer be able to recruit top law students from elite (top 10 schools. This is important, because the only reason they offer first year salaries of $180k is because they are trying to stay in the market for the super high end talent. Once they give up the ghost with the high high end talent, might as well reduce those starting salaries to $135k, which is the most even a top graduate from Fordham or George Washington should ever be making.

Posted by: JM | Jun 12, 2018 11:08:08 AM

Obligatory reminders:

1) Simpson Thacher's January 2007 raise to $160k is worth $198k in today's dollars

2) Tuition at leading law schools stickered at $40k/year in 2007 but more than >$60k/year today

3) First years at Cravath in 2007 had $35k bonuses; this past year they were $15k.

The long and short is that new lawyers at leading law firms still aren't making what their counterparts were a decade ago.

Posted by: Unemployed Northeastern | Jun 12, 2018 11:33:41 AM

In the past, salary increases at the top firms have always trickled down to salary increases at less elite firms. As long as there are some talented graduates on the margin to compete over--who might be considering a smaller firm over a more elite one for geography or lifestyle reasons--when one employer increases salary, the others feel pressure to follow.

Nor have salary increases led to layoffs in the past. Salary increases have typically accompanied growth in the number of lawyers, which we've seen at the large law firms and also throughout the economy as a whole.

$190K for someone fresh out of school is some serious money, and that's just base salary. With typical bonuses, in recent years, we're talking total monetary compensation of around $220,000, just to start, and quickly getting up to $400K to $500K within a few years.

After scholarships, law school typically costs closer to $30K per year ($90K in total for 3 years), but even $60K per year ($180K per year) is a bargain.

Recent college graduates with humanities and social science degrees earn around $30K to $40K per year and often struggle to find work.

One or two years of work at a big firm is enough to pay for law school. And then our lucky graduate has another 40 years to work and bank that massive earnings premium.

Posted by: Grade inflation | Jun 13, 2018 6:43:18 AM

This is an even weaker sauce than your usual.

- Again, the 2007 market rates of $160k salary and $35k bonus in real dollars work out to more than $240,000. That is more than the $205,000 new-market salary & bonus schedule. See how that works? $240,000 is a larger number than $205,000. Not to mention that in every city where one might find these market salaries, the cost of living is a lot higher today than in 2007. Oh, and that $180k mark still isn’t nearly as universally accepted by law firms as the $160k mark was a decade ago, particularly once we get outside of NYC / DC / SF.

- For the last several years now they’ve had these things called ABA Form 509 disclosures. You can find them on a place called the Internet. In them you will discover that 40% to 60% of the student bodies at law schools like Harvard pay sticker. Today that means $270k before interest (which accumulates while in law school), bar loans, or undergrad debt. That’s way more than can be repaid in two years even if one could throw every penny of their takehome at it.

- Are you seriously trying to compare Ivy League law grads with run-of-the-mill liberal arts majors? That’s not disingenuous at all (rolls eyes). Instead, let’s compare them to Ivy League undergrad liberal arts majors. A most of them go to MBB or the bulge bracket banks. A few years later, they go to HBS / Wharton / SBS for less time and less money than law school. A few years after that, they can find themselves in private equity or investment banking making vastly more than law school associates earn and barking orders at law firm partners to have said law firm associates do XYZ over the weekend for them.

- “often struggle to find work.” Yeah, the U3 unemployment rate is under 4% yet law school graduate unemployment nearly a year after graduation is still double that.

Posted by: Unemployed Northeastern | Jun 13, 2018 1:20:51 PM

"In the past, salary increases at the top firms have always trickled down to salary increases at less elite firms. As long as there are some talented graduates on the margin to compete over--who might be considering a smaller firm over a more elite one for geography or lifestyle reasons--when one employer increases salary, the others feel pressure to follow."

This is an economic inefficiency that is begging for correction. The top 20-50 firms are vastly richer than the second tier, and they work on matters of such high monetary value that it supports this pay structure. The secondary firms like Choate, Foley, Brown Rudnick, etc. have just a fraction of that wealth, and oftentimes their attorneys work on miniature matters that have well under a $1million in controversy. The top firms could easily set a salary structure that the second tier cannot match. If/when that happens, the second tier firms might as well drop from $180k + bonus to the $135k + minimal bonus range because they will no longer be fishing for the brightest talent, and T30 grads with median grades are a dime a dozen.

Posted by: JM | Jun 15, 2018 7:25:31 AM