© 2018 The Texas Lawbook.
By Mark Curriden
(June 18) – A handful of Texas-based corporate law firms are expected to decide this week whether they will increase compensation for first-year associates to $195,000 a year.
Paychecks for associates in their eighth year – the year before the lawyers are up for partnership – could jump to $340,000, and that’s before incentive bonuses ranging from $25,000 to $100,000 are included, The Texas Lawbook has learned.
The pressure to boost pay to younger lawyers intensified late last week when two national law firms with large presences in Texas – Kirkland & Ellis and Sidley Austin – announced they had matched the compensation schedule introduced early last week by New York corporate legal giant Cravath, Swaine & Moore.
A handful of other national law firms with sizable offices in Texas – including Jones Day, Simpson Thatcher, Winston & Strawn and Weil, Gotshal & Manges – also adopted the increased pay plan, which includes a $190,000 base salary and a guaranteed $5,000 annual bonus.
Legal industry analysts tell The Texas Lawbook that the decision by these elite corporate legal practices, which employ hundreds of young business lawyers in Austin, Dallas and Houston, likely set in motion a domino effect that will lead several Texas-based law firms to match part or all of the compensation increases because the competition for high-level legal talent is stiff.
“Most sophisticated law firm leaders understand they need to be market-competitive for the most sought after legal talent,” says Kent Zimmermann, a law firm consultant at Zeughauser Group in Chicago. “The Texas firms that regularly compete for the same lawyers as the national elites will match.”
Partners at Houston-based Vinson & Elkins, speaking on the condition that they not be identified, say that the firm will tackle the issue this week and is almost certain to match the pay scales of its national competitors.
Similarly, partners at Houston-based Baker Botts say their firm is also monitoring competitors’ actions and would likely take action if V&E does so.
Baker Botts issued the following statement Monday afternoon: “As with many firms we are reviewing the recent increase in associate compensation announced by several firms. While we have not made a final decision we will, as we have in the past, remain competitive in terms of compensation packages.”
Legal analysts say the decision by Kirkland, Winston, Sidley and Weil to pay $195,000 essentially forces the hand of V&E and Baker Botts.
“Sidley Austin remains committed to attracting, training, and retaining the best attorney talent, which benefits our clients,” says Yvette Ostolaza, who is managing partner of Sidley’s Dallas office and a member of the firm’s management and executive committees. “We continue to be committed to expand in Texas and are excited about our continued growth in Houston and Dallas.”
The big question, according to Zimmermann and other industry analysts, is whether the next tier of Texas-based law firms – such as Dallas-based Haynes and Boone and Houston-headquartered Bracewell – will make the jump or just wait on the sidelines.
“This doesn’t mean that every law firm needs to go to $195,000,” Zimmermann says.
Dallas legal headhunter Randy Block of Performance Legal Placement says he thinks most Texas firms will increase compensation, but he thinks some will wait until later this summer to make the move.
“V&E and Baker Botts have consistently been market leaders in matching base salaries,” he says. “I think we will see the same this year, but I think these are salary matches, not necessarily bonus matches.”
Block says that most associates are not going to make a career move just over this single compensation increase.
“If you are happy at your law firm, you are not going to jump to another firm for just $5,000 or $10,000 more,” he says.
Many Texas law firms last increased first-year associate pay in June 2016 from $165,000 to $180,000 a year. In 2000, newbie lawyers were paid $80,000 in Texas.
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 now go up.
The new round of salary hikes started two weeks ago when New York-based Milbank Tweed surprised the legal industry by bumping first-year associate pay to $190,000. A few firms followed.
But the movement gained momentum last week when Cravath announced it was raising base compensation for first-year associates to $190,000 and adding a $5,000 guaranteed bonus. Most of the large corporate firms quickly matched.
At least one Houston law firm leader pushed back last week.
“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,” Zavitsano ssays. “We could price ourselves right out of the Seventh Amendment right to a civil jury trial.”
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