As salary wars heat up, associates reap benefits

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Money may not buy happiness, but a number of area law firms are banking on the hope that it will buy them a good class of first-year associates.

Firm

Starting

Salary 1999

Starting

Salary 2000

Briggs and Morgan

$75,000

$90,000

Dorsey & Whitney

$75,000

$90,000

Faegre & Benson

$75,000

$90,000

Leonard Street and Deinard

$75,000

$90,000

Oppenheimer Wolff & Donnelly

$75,000

$90,000

Robins Kaplan Miller & Ciresi

$75,000

$90,000

Fredrikson & Byron

$75,000

$85,000

Gray Plant Mooty Mooty & Bennett

$70,000

$80,000

Lindquist & Vennum

$68,000

$80,000

Rider Bennett Egan & Arundel

not disclosed

not disclosed

Joining a nationwide trend, several large Twin Cities law firms have announced a 20 percent increase in the base salary offered to first-year associates. Starting associates at the state’s biggest firms — who last year took home a median salary of $70,000 — this year will be receiving up to $90,000 in base pay.

Many have termed the national trend toward rising salaries the “Gunderson Effect,” in reference to salary wars sparked by the 45 percent hike in entry-level associate wages announced by the California-based law firm of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian last December. Since January, law firms nationwide have been grappling with the decision whether to offer more and more money to new associates, or risk losing legal talent to dot-com companies or other law firms that have jumped on the high-salary bandwagon.

Still, some say throwing money at new attorneys is not the answer, and may lead to decreased loyalty to a firm. Some fear that associates will be expected to bill more and more hours to “earn their keep,” which would lower their job satisfaction and make them susceptible to burnout.

Others predict that decisions to terminate associates for failure to meet strenuous billing goals will be made more swiftly, creating the impression that those firms do not truly care about their associates.

Minnesota Lawyer contacted Minnesota’s 10 largest law firms for their perspectives on the salary wars, and asked what they plan to do to attract and retain legal talent.

Dollars attract and retain

New attorneys looking for work in Minnesota are in luck — six of the state’s 10 largest law firms are offering base salaries of $90,000 to first-year associates, and have not yet substantially increased the number of billable hours expected from the “workhorses” of the legal profession.

Other firms are not far behind in the base salaries offered to new attorneys, and have bonus programs in place to reward associates who go above and beyond billable-hour targets. Even though the funds used to pay the augmented salaries will come out of the net profits of the partners, firms say their shareholders are not bitter and actually support the pay increases.

Jeffrey F. Shaw, managing partner at the Twin Cities’ firm of Briggs and Morgan, observed that partners’ initial reaction to the salaries paid to attorneys just out of law school was one of disbelief. (The firm pays first year associates $90,000, up from around $75,000 last year.)

“[Partners question] how an associate can be worth that much,” said Shaw. “But a good associate contributes [to the firm] both economically and as part of the team. … There’s a certain morale issue,” he added. Associates at Briggs and Morgan are expected to bill 1,800 hours per year — which breaks down to around 36 billable hours per week. According to Shaw, requiring associates to meet the billable hours goal allows the firm to “make sure [the associates] are working” but is not out of line with what other firms require.

Staying competitive

The most common reason behind the increased salaries is that firms don’t want to lose their competitive edge or be perceived as “second tier.” Firms want to guard against losing legal talent to firms in other areas of the country to high-paying nontraditional careers or to firms down the street that have decided to follow the trend and pay associates more money.

Michael J. Bleck, managing partner at Oppenheimer Wolff & Donnelly, the state’s second largest firm, said the “sizable increase” in salary for first-year associates at the firm reflects national trends, competition from nontraditional sources such as dot-coms, the strong economy and higher public demand for legal services.

“We matched the market — we didn’t set it,” he said. According to Bleck, neither billable hours required nor billable rates have increased as a result of the raises, and the firm’s partners support the decision to increase compensation for first-year associates to $90,000.

Bill Johnstone, managing partner at the state’s largest firm, Dorsey & Whitney, said the firm’s offer of $90,000 to first-year associates was motivated by “national competitive considerations.” The firm hires associates from law schools throughout the nation, and felt compelled to “preserve the differential” between the salaries paid to its associates and the salaries offered by comparable firms in areas such as Chicago and Milwaukee, explained Johnstone. While money is a driving force, it is not the only component important in attracting and retaining associates. The firm has not raised its billable hours requirements, and allows associates to include up to 100 hours of pro bono activity in satisfaction of their 1,850 billable hours target.

“We’re trying to invest more resources in training and professional development, as well as other benefits, to enhance our associates’ experience at the firm,” said Johnstone.

James P. Stephenson, managing partner at Faegre & Benson, said he has “no second thoughts” about raising salaries for associates. (The starting salary for first year associates at the firm will be $90,000, up from $75,000.)

“I’m satisfied that we clearly had to do it to remain competitive — to attract new talent and retain [the talented attorneys we now have],” said Stephenson. “I would hope that raising salaries will help attract and retain associates, but certainly not raising [the salaries] would hurt retention.”

According to Stephenson, the firm has not raised the number of billable hours expected from associates, and has not increased its rates, although the rates may be adjusted after their annual end-of-the-year review. (Faegre & Benson asks that first-year associates bill 1,800 hours a year, or around 36 billable hours per week.)

Fredrikson & Byron offers first-year associates a base salary of $85,000, and expects them to bill 1,750 hours per year. However, the firm has tweaked its production bonus program so that associates who bill 1,850 hours in a year — about what other firms require — will earn $90,000, noted John A. Satorius, the firm’s managing partner.

“Our intent was to match the other firms that offer a $90,000 base salary,” said Satorius.

John G. Kost, hiring partner at Fredrikson & Byron, told Minnesota Lawyer: “We’re in the business of taking care of our clients, which means providing them with the best lawyers we can. Talented attorneys from the best schools and the best backgrounds — attorneys who have the best potential — go to the best spots. Part of [being one of the best spots] is the salary you pay. We don’t want to be perceived as second tier — which we’re not — just because of salaries.”

Fredrikson & Byron’s compensation plan came after “a lot of discussion at board meetings” and talking with associates, according to Kost. Although money is important to the firm’s associates, “intangible opportunities” also play a significant role in attracting and retaining associates, Kost said. In addition to the opportunity for good training, experience, and mentoring, associates at the firm have access to valued clients and the ability to build their reputations as part of a successful law firm, Kost observed. Associates lecture and publish articles, and participate in pro bono activities, even though such activities are not counted toward the billable hours requirement, he added.

Retaining new hires

Big firms emphasized that they have no intentions of luring new associates with huge paychecks, only to lose them to burnout in a few years. Every firm said it hires associates in the hopes that attorneys will spend their careers at the firm.

Bob Gilbertson, hiring partner at Robins Kaplan Miller & Ciresi, observed that in order to be competitive for the best legal talent, a firm must be competitive on base salary.

“Law students and new associates tend to focus on the number,” said Gilbertson. New associates at the Robins firm will earn a base salary of $90,000, up from $75,000 last year, and also receive a “bonus component” based on how well the firm does, Gilbertson explained. The number of billable hours expected from associates has not changed — associates are given a “guideline” (as opposed to a requirement) of billing 1,900 hours per year, including 50 hours of pro bono work.

According to Gilbertson, the number of hours actually billed by associates varies from year to year, and last year the average number of hours billed by associates was 1,703. “Like any firm, some people don’t stay [with the firm], but certainly when we hire associates we expect that it’s a long-term proposition,” said Gilbertson.

Lowell J. Noteboom, managing partner at Leonard Street and Deinard, describes the 20 percent salary hike for first-year associates at his firm as a “true increase” because other benefits and forms of compensation remain unchanged. (Salaries for first-year associates will be $90,000, up from $75,000.)

However, the increase in salary comes with a “modest increase” in the number of hours associates are expected to bill during a year. Noteboom explained that the 1,850 billable hours that will be expected from associates per year is “almost no change,” and represents an increase of about six billable hours per month. Moreover, associates have some flexibility in the way they reach this requirement, he added.

Leonard Street and Deinard has a strong commitment to pro bono work, and also runs a free legal clinic in the Phillips neighborhood, Noteboom said. Unlike many firms, Leonard Street and Deinard allows associates to count up to 100 hours of pro bono work in their billable hour tally, he added.

“We’ve made this increase in salary without taking away our traditional credit for pro bono work and without taking away the bonus program. It’s a true increase,” said Noteboom.

Daryle L. Uphoff, managing partner at Lindquist & Vennum, said the firm has raised salaries for first-year associates from $68,000 per year to $80,000 per year in order to remain competitive, but has not raised billing rates or the number of hours it requires its associates to bill per year. (The firm asks its associates to bill 1,750 hours per year.)

“This is a difficult issue to deal with, particularly when trying to compete for students on a national level,” Uphoff remarked. “We emphasize that [attorneys] can work here and still have a high quality of individual life. … Our track record on [retaining] associates is probably better than most firms — we anticipate that most of our associates will stay with us.”

According to Uphoff, the firm employs other methods beyond increased salaries to retain its associates, including integrating associates into practice groups and giving associates “as much responsibility as they can handle as quickly as possible.”

Great pay not great news

Even though law students may be jumping for joy over the news of the salary hikes, not everyone believes the good times can continue for long.

According to Susan Gainen, career services director at the University of Minnesota Law School, “no good can come of raising salaries [for associates]. None, except for student loans getting paid off.”

Gainen observed that although the trend toward astronomical salaries for lawyers just out of law school is just beginning in the Twin Cities area, in some areas of the country new associates are being paid up to $160,000. However, those associates are also expected to bill 2,400 hours per year, which breaks down to billing eight hours a day, six days a week, year round, she explained. There is a high incidence of burn-out when associates are worked that hard, which causes attorneys to work for a firm for a few years and then move on, she added.

Gainen also foresees a decline in pro bono activity and charitable activity as a result of the rising salaries. In some areas, pro bono work is no longer counted as part of an associate’s billable hours, and philanthropic activity may be seriously cut if partner profits are spent on associate compensation, Gainen remarked.

Still, Gainen recognizes that increased salaries are a driving force behind the career decisions of law students.

“When [students] are making decisions about [which firms] to apply to in the very first days of their second year of law school, and they may not have worked for a law firm before, they have questions of how to tell the firms apart. [Base salary] is a way to make the first cut,” said Gainen.

Gainen believes that those in career services and those recruiting new attorneys should help students focus on the differences beyond salary that exist among law firms, for example, firm culture, hourly requirements and preferences, training and mentoring opportunities and the underlying fina
ncial health of the law firm. “Students need to realize that they will be losing autonomy and control over their lives when they go to work,” said Gainen, who advises students to question whether they like the people with whom they are contemplating spending a significant portion of their time.

According to Gainen, the best approach for law firms is to offer a reasonable salary along with a reasonable expectation as far as billable hours — and to be sure to deliver on the promise of a balanced life.

Rejecting the salary war

Some of the largest Twin Cities law firms maintained that they have adopted a balanced approach that stresses quality of life over heightened compensation.

Bruce W. Mooty, managing partner at Gray Plant Mooty Mooty & Bennett, said that associates at the firm erupted in two spontaneous rounds of applause when it announced its compensation package, even though the $80,000 starting salary for first-year associates is less than what is offered at some other Twin Cities firms. According to Mooty, the reason for the applause was that the billable hours expected will remain at a manageable 1,680 per year and the partnership track has been shortened to just five years.

“Some firms pay [associates] more money, but also pressure them to bill more hours — whether it’s a stated or unstated requirement,” said Mooty. Mooty explained that while a $10,000 difference in salary may be important for some attorneys, associates at the Gray Plant firm likely get paid more money per billable hour and have the opportunity to become partner within a much shorter time frame. According to Mooty, “[the difference in salary] is not seen as a loss at all,” especially when the five-year partnership track is factored in.

The Gray Plant firm, which formulated its plan after consulting associates and principals, believes that the plan is best for the law firm and for clients, and will give the firm a competitive advantage in the marketplace.

“Attorneys can have a career here — the lifestyle is sustainable,” said Mooty, who observed that law firms that require a high volume of billable hours are more likely to lose associates to burnout. “We’ve hired associates from other firms who said life was just too short for that,” said Mooty.

Eric J. Magnuson, managing partner at Rider, Bennett, Egan & Arundel, said he was interested to read press reports characterizing Gray Plant’s decision to keep both salaries and billable hours in check as an “innovative solution.” Unlike most firms, which set quotas or “targets” to gage whether associates are billing enough hours, Rider Bennett has no stated billable hours requirement and places a high priority on offering its attorneys a balanced lifestyle.

“What they think is innovative, we’ve been doing for years,” he said. “We have a mission statement that advocates balance between work and the rest of your life, and have had no problem attracting talented lawyers who are not interested in the rat race. That doesn’t mean we don’t work hard. We work hard because we want to or because we want to help our clients — not because we want to earn the salaries the other firms are paying.”