On Monday BigLaw associates and hopeful law students got some welcome news: Cravath announced it was raising its associate salaries for the first time in nearly a decade. First year associates would now be making $180,000 a year, up from the $160,000 that represented the market pay since 2007. We here at Vault have been reading the complaints about the market pay from thousands of associates in our annual associate survey for years, so it’s welcome news to us too! Let’s look below the surface to understand the new raise.
Cravath announced raises for associates at all levels, ranging from $20,000 for junior associates to $35,000 for senior associates. The new “Cravath Scale” is as follows:
Venerable New York firm Cravath, Swaine & Moore LLP. Long ranked as Vault’s #2 firm for overall prestige (though it’s nipping at the heels of Wachtell in recent year), Cravath invented the lockstep compensation system and has always been one of leaders in compensation. Let’s go to Cravath’s Vault profile for some background:
“Cravath is a market leader in salaries, bonuses and hiring practices. Named partner Paul Cravath pioneered the modern associate hiring approach (still called ‘the Cravath System’), which focuses on finding the best and brightest law school grads, paying them high salaries in lockstep compensation and promoting partners from within that group after a certain number of years.”
Cravath is also usually the first firm to announce year end bonuses, so it’s not surprising the Cravath was the first to announce a new pay scale. Other firms have already jumped on the train, including new LA boutique Hueston Hennigan, Milbank, Paul Weiss, Cahill, and Weil. Of course more firms will match the new raises in the coming days and weeks, but will it be a BigLaw-wide pay increase like we had with the $160k scale, or will there begin to be a bit of stratification between the $180k firms and the $160k firms? We don’t know yet, but given record profits in the industry over the last few years, I imagine pretty much any BigLaw firm that considers itself to be top tier will have the ability—and will feel the pressure—to match the raises pretty quickly.
At first it looked like it might just be the big markets. Cravath only has the one US office in New York, but Hueston Hennigan and Milbank spread the raises to LA (both) and DC (Milbank). Then Weil upped the game by announcing the new raise was in effect for all US offices, which extended the pay raises to Weil’s offices in Boston, Dallas, Houston, Miami, Princeton, Providence, and Silicon Valley.
The where question is an important one. When associates last got raises, they went to New York associates first, quickly followed by the other largest markets (LA, DC, San Fran). But over the years nearly every decent sized legal market has moved up to match the New York market. So why would a new associate decide to live and work in an expensive area like New York or the Bay Area when they could make the same salary in Philly, Austin, or Charlotte? Associates in the larger and more expensive markets have been complaining ad nauseum in recent years in the Vault Associate Survey about the unfairness of pay being equal across markets when the hours expectations, billing rates, and costs of living vary greatly. If other firms follow Weil’s move and the new pay scale goes beyond the largest markets this year, that will be a big change from how pay raises have been rolled out in the past and may keep big city associates from being fully satisfied with the raises.
Cravath’s announcement in early June is a pretty crafty move. Rising 2Ls are deciding right now which firms they want to interview with during the fall recruiting cycle. Cravath just made sure they were at the top of every rock star law student’s list. Cravath (and to a lesser extent, Milbank and any other fast matching firms) will have an advantage this recruiting cycle over all the firms that haven’t (yet) announced the new pay scale. Cravath isn’t dumb and this is not a coincidence.
As for when the pay increases will kick in, Cravath has said it will be in July and Milbank has confirmed that the raises will be applicable to the new class of associates that start this fall.
We can only speculate as to why Cravath just raised associate pay after a decade of stagnation—though I have a little bit of insight and a few theories. Perhaps the nationwide pay equality meant NY-based Cravath was losing out on associates who chose to work in other markets where their pay would go further. As mentioned above, New York associates at Cravath (and pretty much every other BigLaw firm) have been lamenting in recent years that their pay is the same as associates in smaller markets.
Perhaps after years of record profits per partner at Cravath (and many other top firms), Cravath decided associate morale needed a boost and felt showing them a (relatively small) piece of that bounty would be make their associates happier (and maybe, more productive). As one Cravath associate complained in the 2016 Vault Associate Survey, “Pay was stagnant this year despite the firm's constant bragging about having its best year ever and experiencing record growth etc., which has caused some dissatisfaction. The fact that compensation is still at 2007 levels even though the firm is much more profitable now has not gone unnoticed, nor has the fact that salaries have been the same for a decade while the cost of living in New York has spiraled upward.” Unmentioned here, but definitely not unnoticed by newer associates, is that the cost of law school has gone way up since the last associate pay raise. And although $160,000 is an objectively great salary for an inexperienced new grad, the salary isn’t quite as impressive when you’re carrying $200,000 or more in student loan debt. Cravath just eliminated these complaints and boosted associate morale in one fell swoop.
Perhaps the dwindling new associate pool meant Cravath felt pressure to distinguish itself to bring in the top associates. There were about a third fewer law school enrollees in 2015 (37,058) than at the peak in 2009 (51,646). As I said, Cravath is definitely getting a bump in this year’s recruiting cycle, and—since the market BigLaw pay scale/bonuses tend to get named after the first firm to act (see the STB pay scale, when Simpson Thacher set the pay scale in 2007)—likely in the next few recruiting cycles as well as the pool of new law school grads continues to shrink. And although Cravath rarely hires lateral associates, perhaps the new pay is intended to be an incentive to keep their talent from being poached by other firms that don’t pay their associates as well (at least until the rest of the market matches).
Whatever the reasons behind the big pay boost, and I think it’s likely some combination of all of these factors, congratulations are in order to the slightly better off to Cravath, Milbank, Hueston Hennigan, Weil, Cahill, and Paul Weiss associates. Now, since I jumped off the BigLaw gravy train last year, I’ll just sit back, grab some popcorn, and watch all of BigLaw scramble to figure out whether they have to match Cravath (and, for some firms, whether they can), which offices will get the raises.
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