As 2023 concludes, U.S. law firms are adapting to a competitive market amid a decrease in demand, resulting in varied approaches to employee compensation. Prominent New York firms like Cravath, Swaine & Moore, and Milbank are leading the way with significant salary increases for senior associates, rising by up to $20,000, and offering substantial year-end bonuses ranging from $15,000 to $115,000.
This trend in bonus distribution, typically occurring at year’s end, comes despite a general slowdown in U.S. firms, particularly in the mergers and acquisitions sector. Firms are eager to retain their staff in the face of competition, prompting them to match or exceed rivals’ pay rates.
Milbank initially set the pace in November with an announcement of salary and bonus increases for associates, later revising their pay bands for senior associates in response to Cravath’s higher scale. Cravath’s revised pay scale, effective from January, spans from $225,000 for recent 2023 law school graduates to $420,000 for those from the class of 2017, marking an increase of $10,000 to $20,000 from 2022 figures. They also announced bonuses ranging from $15,000 to $105,000.
Following suit, firms such as Paul Hastings, Boies Schiller Flexner, and Simpson Thacher & Bartlett have adopted similar pay scales. Notably, some of these firms offer even higher salaries, up to $435,000 for 2016 law graduates, with bonuses reaching $115,000.
This trend extends beyond U.S. with UK firms like Freshfields Bruckhaus Deringer and Herbert Smith Freehills aligning their U.S. lawyer salaries with the Cravath scale.
Despite the overall slowdown in deal-making, a Wells Fargo Legal Specialty Group survey of over 120 firms noted a substantial increase in billing rates in 2023, averaging 7.9% for the first nine months. This uptick has contributed to higher firm revenues.
However, not all lawyers are guaranteed these market-rate bonuses.
Firms such as Simpson Thacher & Bartlett and Davis Polk have indicated potential reductions in year-end bonuses for associates not adhering to office attendance requirements. This move reflects a broader effort by U.S. firms to encourage in-person work to maintain firm culture and junior talent development, with many requiring a four-day in-office workweek, compared to the three-day norm among top UK firms.
Amidst these changes, the challenging economic climate has pressured law firms to reassess their staffing strategies. Following rapid hiring during the pandemic, some firms have resorted to discreet methods for managing associate numbers, including relocating lawyers to busier practices and implementing stricter performance reviews, as noted by Citi Private Bank’s law firm group and Hildebrandt Consulting.
