Big law firms paying associates more cash

Big law firms in Philadelphia are boosting compensation for lawyers below the partner level in a sign that the competition for talent is heating up.

The most dramatic example is at the University City-based firm of Dechert L.L.P., a global firm that touts its deal-making prowess in the United States and abroad. The firm paid first-year associates a $15,000 bonus this year, on top of annual salaries of $160,000. For associates with more experience, the bonuses were much higher, as much as $100,000 for lawyers who joined the firm in 2008.

Dechert is one of the nation's most profitable firms - partners earn more than $2 million a year, on average - but the sense that better times have returned is apparent elsewhere in the legal industry.

"The firms that I am working with are still watching their pennies pretty carefully," said Malvern-based legal consultant Robert Denney. "They are having a good year, not great but good, and they are cautiously increasing compensation."

The bonuses at Dechert follow decisions by Dechert and other firms earlier in the year to boost starting salaries for new lawyers in Philadelphia for the first time in years.

Drinker Biddle & Reath L.L.P. raised first-year salaries from $145,000 to $160,000 in recognition of the need to stay competitive, the firm said.

"I think we are viewed as a destination firm, but you need to recognize that like in any other sector, whether it is law or business or services, if you want to get the very top talent you need to be competitive," said Andrew Kassner, Drinker's chairman and CEO.

First-year associates also got a boost at Pepper Hamilton, which raised salaries from $140,000 to $150,000. Cozen O'Connor plans to increase starting pay in 2016 for first-year associates from $135,000 to $145,000.

Only a few years ago, big firms laid off hundreds of associates to cope with the downturn in the legal business that followed the recession, which began in 2007. Then, many clients complained that salaries for first-year lawyers had gotten out of hand. Clients were under financial pressure and resisted paying high hourly rates for young lawyers with little practical experience and limited skills.

But now that firms are busy again in everything from commercial real estate to mergers and acquisitions, they say they must keep filling the employment pipeline with young lawyers or they will run out of people to do the work. The first-year associates are not so important in and of themselves; it's what happens when they get a few years of experience and can do something useful for clients.

Seasoned associates are profitable for big firms, said Eric Seeger, a principal at Altman Weil, a Newtown Square-based legal consulting firm.

"At most firms, associates are busy overall; they're busier than partners right now," Seeger said. "Well-managed firms continue to drive work down to the lowest capable level and use idle partner time generally for business development."

That's why the salary increases for first-year associates typically are dwarfed by those for more experienced associates. Firms fear that if their pay falls behind they will become recruiting targets for competitor law firms or corporate legal departments. At Dechert, which increased pay for first-year lawyers in its Princeton and Philadelphia offices to $160,000 - it had been at that level for some time in other Dechert offices such as New York and Washington - the increase was much steeper for lawyers with more experience.

Second-year associates went from $152,500 to $170,000, while lawyers eight years out of law school were bumped up $70,000, to $280,000.

The Dechert salary figures were first reported by the legal blog Above the Law and confirmed by the firm.

One law firm leader who declined to be identified said the salary increases made him nervous, bringing back unpleasant memories of the salary wars among firms from 2000 to 2007. That ended with the onset of the recession, and layoffs soon followed. Now that work is returning, salaries are rising again. And so are worries that, with the next retrenchment, some newly hired lawyers may become unaffordable.

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