It was just supposed to be an “appreciation bonus,” not start a wage war.
In September 2020, Cooley LLP, a Palo Alto-based law firm, announced it was handing out $2,500 to $7,500 in one-time payments to associates. The bonuses came as the firm—along with many others in the legal industry—realized it was both flush with cash and facing worker burnout during the pandemic.
While most attorneys at larger firms expect to receive one annual bonus, Cooley’s move was quickly matched by others, including Davis Polk & Wardwell LLP and Willkie Farr & Gallagher LLP. One payout was becoming two and now potentially three in a single year.
Bonuses soared to as much as $140,000 last year for a senior associate, and they’ve kept coming in 2021, with a potential windfall of $164,000 on top of salary by year end. Alongside the added cash, firms promised more time off and extended work-from-home arrangements, all part of an effort to retain and attract talent for what are often grueling 100-hour work weeks.
The rapid rise in bonuses has created an arms race of sorts in the industry, which has long had a lockstep approach to salaries. Lawyers for the largest U.S. firms traditionally earn based on the “Cravath scale,” a historical practice of following the wages set each year by Cravath Swaine & Moore LLP.
First-year associates joining a major firm in 2021 will be paid $190,000 in salary, an amount that hasn’t changed since 2018, according to Biglaw Investor, which tracks compensation. An associate entering her or his eighth year with a major firm should expect to be paid $340,000.
The bonus windfall was due in part to the feverish rush of corporate work that hit in the latter half of 2020, most notably a rash of restructuring filings, as well as new efforts to raise capital and the blank-check merger frenzy.
The U.S. legal industry, which reported 2.3% unemployment in March, is far from the only one boosting pay and offering better working conditions to hold onto or attract workers. Wall Street firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. are also facing strong demand for investment bankers and offering junior workers more money, vacations and even forced Saturdays off.
Holding onto young lawyers is critical as the market for associates heats up, especially for those practicing corporate law.
“We’re not seeing firms ask us for one or two associates. Some are coming to us saying we need 10,” said Summer Eberhard, West Coast-based managing director in the associate practice group at legal recruiter Major Lindsey & Africa.
The boom in legal services comes after law firms had prepared for the worst last summer, in the wake of the coronavirus. Many firms cut salaries for lawyers and staff, while some furloughed their employees to get through what they thought would be a massive economic downturn.
Instead, 2020 turned into a windfall year for the industry’s top 100 law firms by revenue, which brought in almost $111 billion in revenue, up 6.6% from 2019 and the biggest increase since 2018, according to data from the American Lawyer.