© 2018 The Texas Lawbook.
By Mark Curriden
(June 12) – Hundreds of young lawyers working at large corporate law firms in Texas are monitoring industry insider blogs and texting their friends at cross-town rivals in hopes of learning if they are all about to get a big pay increase.
They may be waiting a bit longer than they expected.
New York-based Milbank Tweed announced last week that it increased annual compensation for first year associates from $180,000 to $190,000. Eight-year associates – the year before lawyers are up for partnership – are now being paid about $330,000.
Milbank does not have an office in Texas, but a handful of law firms that do – Winston & Strawn, Simpson Thacher and Jones Day – have matched Milbank’s pay plan.
Some legal industry insiders say the jump to $190,000 for newbie lawyers is inevitable for most corporate legal operations in Texas, and history supports that viewpoint.
But other analysts say Texas corporate law firm leaders are more hesitant this year because they received significant pushback from business clients exactly two years ago when the firms increased first year associate pay from $165,000 to $180,000 a year.
The jump in associate compensation means several million dollars in additional expenses for law firms, which pay for it through increased hourly rates they charge to business clients. First year associates at most of the large corporate firms in Texas are billing at rates ranging from $325 to $450 an hour. That will go up.
“In Texas, most firms are watching to see what [Vinson & Elkins] does,” he says.
No law firm leaders want to talk on the record about increasing associate compensation because it could raise the anger of clients.
But interviews with legal industry decision-makers say these are the critical touch points to monitor:
Five elite national law firms with a large presence in Texas – Gibson Dunn, Kirkland & Ellis, Latham & Watkins, Sidley Austin and Weil Gotshal & Manges – compete directly for legal talent firms that have already matched: Winston, Simpson and Jones Day. If those five firms move to increase associate compensation, it will have a significant ripple effect in the legal market.
Houston-based V&E is traditionally the first Texas firm to match the national legal practices because they compete for some of the same talent coming out of law school. If Gibson, Kirkland, Latham, Sidley and Weil match Milbank, V&E is almost guaranteed to do so, too.
If V&E jumps, Baker Botts and Haynes and Boone almost always follow. The decision for other Texas firms at that point is whether to follow in order to compete for the top legal talent or keep rates lower for clients.
Eventually, most corporate law firms will pony up.
“Firms in Texas do not have to pay exactly the same bonuses as New York City firms, because associates’ money goes about three times farther here due to the much lower cost of living and lack of city and state [income] taxes,” he says. “Last week, after Milbank raised salaries, I placed an associate from their NYC office with a mid-sized Dallas firm where he won’t get close to Milbank comp, but he will still have much more money in his pocket at the end of the year.”
The truth is, large elite national law firms can pay the extra $10,000 without blinking. Most of their clients – private equity firms, Fortune 100 companies and businesses facing bet-the-company litigation or transactional matters – pay four-digit hourly rates without a second thought. The hardship is for upper-middle-market law firms – a.k.a. Texas-based firms – that are already struggling to explain increased rates to their long-time institutional clients.
At least one Houston law firm leader is pushing back.
“We pay well at AZA and we want to compete for the best and the brightest. But I am troubled when I see Big Law upping the ante yet again,” says John Zavitsanos, managing partner of Houston litigation boutique Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, also known as AZA.
“I’m concerned for the clients. It’s worrisome to see the cost of litigation climbing so high that citizens can’t afford to use their own courts,” Zavitsanos says. “We could price ourselves right out of the Seventh Amendment right to a civil jury trial.”
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