Cravath, Swaine & Moore has raised its starting salaries for first year associates to $180,000, the first time the elite New York law firm has increased base salaries for its junior lawyers since 2007, a move that signals increased competition for a shrinking pool of top law graduates.
The raise constitutes a $20,000 increase from the previous year and is effective July 1, according to an internal firm memo provided to Big Law Business by a source at Cravath on the condition of anonymity.
The salary news was first reported by Above the Law.
The memo provides the full associate pay spectrum, from first-year to senior associate:
Class of 2015 — $180,000
Class of 2014 — $190,000
Class of 2013 — $210,000
Class of 2012 — $235,000
Class of 2011 — $260,000
Class of 2010 — $280,000
Class of 2009 — $300,000
Class of 2008 — $315,000
William Henderson, a professor at Indiana Mauer University School of Law who studies the legal workforce, said that he predicts other New York-centric law firms will match Cravath’s associate pay raise, but doesn’t expect many firms in the country’s 100 largest firms to follow.
“They want to get the best talent,” said Henderson. “I don’t see everybody going to 180 — that’s just a little too rich.”
The competition for top talent out of law school has increased in recent years, as enrollment wanes, and students opt to go to business school rather than pursue a career in the law, said Henderson.
According to a report earlier this year in the American Bar Association, law schools graduated 39,984 students in 2015, down nine percent from the previous year, when 43,832 students graduated.
“It’s possible that (Cravath’s salary raise) is driven by incoming classes only being 80 percent of the size they were a few years ago,” said Henderson. “With the talent pool shrinking, you have to be more aggressive to get the talent that is available. I can understand that argument very much being in play here.”
David Lat, managing editor of Above the Law who broke news of the Cravath salaries, agreed with the logic.
In an email, he wrote:
“A significant part of this pay raise is driven by increased competition for a shrinking pool of top law school graduates. Since law school applications peaked, enrollment is down by around a third — and much of that drop-off has been among students with high GPAs and LSAT scores. So to attract the candidates they want, firms need to make themselves attractive.
High-level talent drives the law business. The fact that thousands of graduates of lower-ranked schools would love to have a salary of $160,000, to say nothing of $180,000, is not relevant to a place like Cravath.
That said, I think a bigger driver is maintaining or improving associate morale and retaining midlevel and senior associates. There aren’t that many jobs out of law school that will pay someone, even a top grad of a top school, more than $160,000. But mid-level and senior associates have other options — and in recent years they have been exercising them, leaving large firms for smaller firms, government, and in-house opportunities.”
Allen Parker, presiding partner of Cravath, did not respond to a request for comment. Leaders of other New York law firms — Weil Gotshal & Manges, Milbank Tweed Hadley & McCloy and Fried Frank Harris Shriver & Jacobson — did not respond to requests for comment.
One law consultant who spoke on the condition of anonymity said that the move won’t make Cravath any friends the legal industry, but it’s a smart business decision.
“It’s going to make it very, very hard for the less profitable law firms to keep up,” this person said. “So there is going to be a lot of bitching and moaning about it.”
And as for clients? Elisa Garcia, chief legal officer of Office Depot, took a diplomatic stance on the raise.
“$180K is steep for a newly minted lawyer, she said. “But, if Cravath can make their model work and still provide me with alternative and fixed fee billing that provides value to my company, then I guess I don’t really care. If, however, they are planning to bill a first year out at an hourly rate that covers that salary, plus a bonus and then some, then I don’t expect Cravath will be able to meet the needs of in-house counsel with limited budgets.”
From a law firm standpoint, Quinn Emanuel name partner John Quinn didn’t seem all that moved one way or another.
“The increases happen periodically,” he said, in an email.
Quinn Emanuel ranked the No. 2 most profitable law firm in 2015, with partner profits averaging $4.4 million. Cravath, meanwhile, ranked No. 6 with $3.5 million profits per partner in 2015, according to The American Lawyer.