It may be a stretch to argue that beginning lawyers at big law firms need more money, but those practicing in New York could make a strong case for a raise.
With more law firms now paying first-year associates in Los Angeles, San Francisco, Chicago and Boston the same amount they are doling out to their starting lawyers in New York, it seems that attorneys in the Big Apple are getting shortchanged in the deal.
Several big law firms in the last few weeks have boosted salaries for first-year associates in large cities to match the $160,000 that their New York beginners receive.
A "nationalization" of their practices is the reason many firms give for paying the same amounts in different locations. But a look at the cost-of-living differentials shows that the copycat compensation is creating some significant pay disparities among associate ranks.
Law firms in California say recent raises are based on what individual markets demand and not on how far a dollar goes in a particular area.
"The marketplace was less regional than we thought," said Orrick, Herrington & Sutcliffe Chairman Ralph Baxter, referring to his firm's decision in May to raise associate pay in California to match its New York offices. Orrick had upped its New York pay in January to $160,000 along with several other law firms at the time.
Orrick's West Coast raises last month set off a rash of salary increases in California that is still spreading. Several firms in Chicago have raised pay to $160,000, including McDermott, Will & Emery; Kirkland & Ellis; and Sidley Austin. Firms in Boston, including Foley Hoag, Goodwin Procter and Ropes & Gray, also have followed suit.
On one hand, firms say that their decisions to boost salaries in Los Angeles, San Francisco and Chicago are necessary to stay competitive in recruiting. Firms want to avoid the embarrassment of becoming pegged as holdouts on upping salaries. On the other hand, they say that as their specific practice areas have broadened to include attorneys from both coasts and cities in between, it is inequitable to pay an attorney in Los Angeles one amount and an attorney in New York another.
"If it were cost-of-living driven, we'd pay less in Walnut Creek," said Morrison & Foerster Chairman Keith Wetmore, referring to one of its California offices.
But maybe it should. Cost-of-living differences are huge among major U.S. cities. According to the Council for Community and Economic Research (CCER), the equivalent of a $160,000 annual salary in New York is $205,631 in Los Angeles. The CCER, a 46-year-old nonprofit organization comprising economic development organizations, government agencies, universities and others, produces the Cost of Living Index.
In Chicago, $160,000 balloons to the equivalent of $278,573, according to the CCER. In the pricey San Francisco market, the equivalent of $160,000 in New York is $190,789. In Boston, it equates to $241,397. Housing provides some of the sharpest contrasts. An apartment costing about $2,000 per month in San Francisco runs to more than $3,400 in New York. The same apartment goes for about $1,600 in Chicago.
Working in New York may provide more opportunity for advancement, which can make up for the difference -- to a certain extent, said Ward Bower, a consultant with Altman Weil. "It's where the best cases and biggest deals are handled," he said. "It's where the greatest chance for promotion lies."
One second-year law student at Stanford Law School said that the raises at non-New York offices make taking a job in New York "kind of foolish.
"These numbers don't inspire me to run to New York to work," said the student, who is a summer associate at large firm in Washington.
Some firms level the field with year-end bonuses. Morrison & Foerster, for example, matches what Wetmore called "the New York model" of bonuses for its associates there. In 2006, big New York firms gave year-end bonuses of up to $65,000 to senior associates. But other firms, including Orrick, use a uniform, firmwide bonus standard.
Law firms are much less likely to account for differences in costs of living now than they were a few years ago, said Richard Gary, chairman from 1992 to 2003 of the firm now known as Thelen Reid Brown Raysman & Steiner and currently the principal of Gary Advisors, a law firm consultancy in Tiburon, Calif.
Firms today operate more cohesively, which has prompted unified pay scales, he said. For those that tout themselves as truly national firms, it is difficult to justify different pay rates. When Gary practiced at Thelen Reid, New York lawyers received about 20 percent more than attorneys in other offices. Those kinds of "New York uplifts" have become less common, he said.
"If a lawyer in branch office A is working at the same level as a lawyer in branch office B -- regardless of whether B is in New York, Dallas or San Francisco -- if it's in a major market, they expect to be treated the same," Gary said.
He added that the volleys in pay between the coasts is speeding up, meaning that West Coast firms are quicker to match moves by East Coast firms. He points to the associate salary increases by Silicon Valley's Gunderson Dettmer Stough Villeneuve Franklin Hachigian in 2000 as the beginning of the homogenization in pay, he said. For the first time in recent history, a West Coast firm had triggered a pay raise. After that series of increases, pay on the both coasts became increasingly similar, he said.
Whether the recent raises on the West Coast and in Chicago will spark a brush fire in New York before the year's end is uncertain. Just last week, one popular legal industry blog reported whispers of increases in New York to $190,000 for first-year associates. Some large New York firms contacted for this story said that they were not considering increases at this time.
But whenever it happens, New York will likely lead the way, observers said, and any associate raises in the near future likely will serve at law firms' peril.
"I fear it," said Joel Henning, a consultant with Hildebrandt International.
Raises in first-year associate pay generally require law firms to increase pay for all associates across the board, which can end up costing several million dollars. Such raises also put "enormous pressures" on associates, already billing huge numbers of hours, to bill more. They also raise the ire of clients who have their own budgets to worry about.
Some firms can handle the financial hit that raises bring, especially the 10 or so firms that reported gross revenues of more than $1 billion in 2006, according to The American Lawyer, an affiliate of The National Law Journal.
But raises based on reactions to other firms, as opposed to those that are carefully planned and timed, can create budget problems for most firms, Henning said.
The multitude of law firms outside of the "charmed circle" of New York will begin to feel a pinch in trying to match New York increases, he predicts. "A whole lot of excellent law firms may need to rethink their whole recruiting strategy," he said. "That may not be such a bad thing."