Has Big Law’s big dog firm Cravath Swaine & Moore set off a burst of wage hikes in the wake of its 12.5 per cent increase – the first in almost 10 years?
Since the GFC law firm economics have changed as clients resisted fee levels and the justification for higher fees became more difficult. Furthermore, profits for the big firms also slipped as demand reduced.
Cravath has held salaries over that period, too.
However the Cravath wage-rise for its most junior lawyers, raising salaries to $180,000 and lifting fourth year rates to $235,000 and eighth year rates to $315,000, according to a memo seen by the Wall Street Journal.
The increase is likely to spawn copycat moves from Cravath’s competitors. Law firms compete for the same pool of top-tier graduates, and salary is often viewed as a deciding factor. Large corporate law firms are often quick to match what market leaders like Cravath pay.
Already, a few law firm partners indicated on Monday that they would match. “No doubt we will be raising as will other firms,” John Quinn, co-founder of litigation powerhouse Quinn Emanuel Urquhart & Sullivan LLP, said in an email. “This market is very efficient in that way.”
Law Student Debt
But lawyers can now come to firms with large debts – often rising above $100,000.
However the demand for top lawyers remains high and much of the incentive towards higher pay rates is based on retaining existing lawyers as much as attracting new ones.
Cravath has been increasing the distance between itself and others, with its revenues of $666.5 million according to American Lawyer magazine, with partners taking home around $3.5 million in profits.
Others to Follow?
It is likely that several of the other major firms will follow Cravaths, further opening the gap between Big Law and “Mid Law”.
Among those likely to pay more are Skadden Arps, Davis Polk & Wardwell.
None of the big players want to be left behind in the pay stakes. Outfits like Cravath have shown good performance in areas like litigation and intellectual property with clients like IBM and JPMorgan Chase.