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US law firms are ending 2023 with pay rises and bonuses as they try to compete with rivals in spite of a slump in demand, though some lawyers face a cut to payouts if they break office attendance rules.
Top New York law firms including Cravath, Swaine & Moore and Milbank have raised salaries for senior associates by as much as $20,000 in recent weeks and handed out year-end bonuses worth between $15,000 and $115,000.
Bonus season arrives at the end of the calendar year for most US firms, many of which have experienced a slowdown due to sluggish M&A markets, but raced to match rivals on pay to try to keep hold of staff.
Milbank was the first US law firm to announce associate bonus and salary rises in November before increasing its senior associate pay bands a second time after Cravath, whose pay scale traditionally sets the benchmark for Wall Street’s legal elite, came out higher.
“In light of the cost of living we thought it made sense for the industry to pay higher salaries and we wanted to be a first mover in instigating that,” said Scott Edelman, chair of Milbank.
The new salary scale at Cravath ranges from $225,000 for lawyers who graduated in 2023 to $420,000 for the class of 2017, an increase of between $10,000 and $20,000 on 2022, according to a person with knowledge of the situation, with the biggest increases going to senior associates. The new scale takes effect in January.
The firm is also paying out bonuses of between $15,000 and $105,000. Cravath declined to comment.
Other firms have mirrored the Cravath scale, including Paul Hastings and Boies Schiller Flexner, and will pay an even higher salary of $435,000 to lawyers who graduated in 2016, with as a bonus of $115,000. Simpson Thacher & Bartlett has also followed suit, according to a person with knowledge of the situation. Simpson Thacher & Barlett declined to comment.
The trend is not isolated to US firms. UK “magic circle” firm Freshfields Bruckhaus Deringer will also pay its US lawyers in line with the Cravath scale, a person familiar with the situation said, as well as Herbert Smith Freehills. Freshfields declined to comment.
Although US firms have entered a slower period for deals, increases in billing rates have helped push up revenue in 2023, according to a survey of more than 120 firms by Wells Fargo’s Legal Specialty Group published in November. It found “some of the highest growth in billing rates we’ve seen”, with rates increasing by 7.9 per cent overall for the surveyed firms over the first nine months of the year.
However, not all lawyers will receive market rate bonuses. Some firms, including Manhattan-based Simpson Thacher & Barlett and Davis Polk have said year-end payouts could be cut for associates who flout office attendance requirements, according to people with knowledge of the situation. Both firms declined to comment.
US firms have been demanding associates spend more time in the office in an effort to protect junior talent and firm culture following more flexible policies introduced during the pandemic. A number of top firms, including Davis Polk and Weil, Gotshal & Manges have asked their lawyers to come back in person four days a week, compared with the three days expected by most top UK firms.
Meanwhile, a tough macroeconomic environment has put pressure on law firms, many of which have reduced headcount after hiring frantically during the pandemic to field demand.
Firms have used “stealth” tactics to manage their associate ranks, according to legal recruiters. “While there have been a few announcements of isolated lay-offs, we have heard from our clients that they managed headcount by moving lawyers into busier practices, and for the most part, through tougher performance reviews,” according to research by Citi Private Bank’s law firm group and Hildebrandt Consulting published in December.