Top law firms are dramatically raising the salaries of associates at least in part to stem defections to Internet companies.
“I was surprised it took them this long,” said BizBuyer.com’s Jay Bettinger, who left his $100,000-plus-a-year job at the blue-chip Century City shop of Allen, Matkins, Leck, Gamble & Mallory last August to become general counsel for the Santa Monica-based business-to-business startup.
After less than two years working on corporate securities cases and merger and acquisition deals, Bettinger traded in his suits for blue jeans and took a significant pay cut. But he also got stock options in a company that took in $38.5 million in its latest round of venture capital funding and is expected to go public sometime this year.
More importantly, he got the opportunity to be part of building something from the ground up.
“I had a great view (at Allen, Matkins), was on the 18th floor with a secretary, a paralegal working for me, and a great legal space. It was a great place to be,” Bettinger said. “Now I’m in a different environment where I’m working on creating something of value.”
Those words may serve as a warning to law firms seeking to keep their best young talent from jumping ship: more money might not help.
Over the past month, many of the country’s leading law firms have raised the base salary for first-year associates from around $100,000 a year to $125,000. With work bonuses, rookie salaries could top $160,000, with comparable bumps for more senior associates.
Until last week, many of these raises applied only to lawyers working in New York and the Silicon Valley. But Los Angeles-based associates of Orrick, Herrington & Sutcliffe (as well as those in the firm’s Silicon Valley, San Francisco, New York and Washington offices) will now receive a starting salary of $125,000 with a maximum potential of $160,000.
Suddenly the bar has been raised to ever-higher levels.
Leading lawyers around town admit it has become hard to keep associates, although the Internet lure is only one of the reasons. Young lawyers frequently cite burnout from the long hours and the cutthroat mentality of the corporate law business when they choose investment banking or in-house corporate jobs.
Meanwhile, the prospect of getting on the ground floor of the next Yahoo is undeniably attractive to some.
“Every law firm has been affected by young associates jumping ship and going to Internet startups,” said Martha Jordan, managing partner at Latham & Watkins, which reportedly paid first-year associates last year a base salary of $95,000. “Anyone who tells you different is lying. L.A. is becoming much more of a high-tech community. And young folks in this day and age have every reason to take this step.”
Latham hasn’t made a decision on whether to match the Orrick, Herrington salary move, but “is committed to remaining competitive,” Jordan said.
That’s a familiar refrain around town. But some firms maintain that, Orrick, Herrington’s largesse aside, L.A. salaries don’t have to match those of San Francisco, Silicon Valley or New York, where the cost of living is much higher.
“There’s more pressure to raise (salaries) in Silicon Valley than in L.A.,” said Michael Meyer, managing partner for the L.A. office of San Francisco-based Pillsbury, Madison & Sutro, which paid its first-year L.A. associates $101,000 in 1999. Last month the firm’s guaranteed base salary for first-year lawyers in the Silicon Valley, San Francisco and San Diego increased to $125,000, but no decision has been made about Los Angeles.
Still, he gave his blessing when an L.A. Internet company approached him recently and asked if it was OK to make an offer to one of his top young lawyers.
“I said I would fight to keep her, but would never stand in her way. I asked what she would be making, including stock options. When they told me, I said, ‘Well, you don’t have to do any due diligence on her. She’s terrific, and I’m going to encourage her to take the job,'” he said.
In some ways, firms are the victims of their own success. The boom in venture capital money has had tremendous benefits for top law firms. If VC deals and subsequent merger activity bring young lawyers into contact with hot Internet startups, it’s hard to bemoan the possibility that some will jump ship.
And given the current excitement over these companies, it’s debatable how effective this current salary war will be in discouraging some lawyers from taking the Internet plunge.
“If the law firms think that by offering an extra $25,000 they are going to dissuade someone from getting a shot at the big brass ring, they’re kidding themselves,” said Gordon Bava, managing partner at Manatt, Phelps & Phillips. “If I were a young person with a bunch of student loans and I didn’t really know what to do with my life, I’d go for the bucks.”
Bava points out that there will be another consequence of all this money going to associates: the prospect of law firms raising the rates they charge clients. He said he has already had calls from general counsels at companies that his firm represents expressing their dismay with the rising salaries.
“They’re saying, ‘If you think you’re going to try and recoup this through higher billing rates, you’ve got another thing coming,'” he said. “But there will be pressure to maybe do just that.”
