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Associate pay raises also raise eyebrows

July 27, 2016

Through the Great Recession, Barrett McNagny LLP got many second looks by potential clients.

The Fort Wayne law firm positioned itself to be more attractive to businesses looking to tighten legal expenditures by providing clients efficient and cost-effective services. As a result, the office got more work, which has led to increased revenue and a higher headcount than it had eight years ago.

Key to bringing on new clients and keeping existing ones is talented attorneys. The firm hired more lawyers during the economic downturn to beef up several practice areas. Attorneys’ resumes and pedigrees are major selling points when courting potential clients and help to overcome skepticism about the Fort Wayne address.

Consequently, Barrett McNagny decided this year that in order to continue attracting the best young lawyers, it needed to raise associate pay.

According to Robert Half Legal’s 2016 Salary Guide for the Legal Field, the approximate salary range for first-year associates at midsized firms in Fort Wayne, those such as Barrett McNagny which have 35 to 75 lawyers, would be $66,625 to $92,455.

Partner Anthony Stites, chair of the firm’s executive committee, explained graduates seek bigger paychecks because of their student loan burden.

“I can’t fathom the cost increase,” Stites said, noting law school tuition has skyrocketed since he earned his J.D. in 1988. “The level of debt these new lawyers are coming out with is difficult to get your arms around.”

Barrett McNagny is not alone in bumping associate pay. Elite firms in New York made headlines this summer when they gave associates a raise for the first time in almost 10 years.

But the pay increases are coming at a time when law firms are still adjusting to new economic realities.

According to the 2016 Law Firms in Transition survey by legal consulting firm Altman Weil Inc., 62 percent of firm leaders think the erosion in demand for work done by law firms is permanent; 47 percent believe a slowdown in profitability will persist. Compounding the situation is the overcapacity of lawyers with 62 percent of firms reporting their non-equity partners were not sufficiently busy.

Companies are increasingly focused on value along with price. While they are relying more on their own legal departments, they still call upon law firms to provide help with complex issues, explained Thomas Froehle, chief operating officer at Faegre Baker Daniels LLP. As such, lawyers from the firms are becoming close collaborators with these businesses.

Faegre is responding to these market changes by giving particular focus to certain industries such as health care and life sciences, financial services, energy, and agriculture. Lawyers get to know the clients’ businesses by becoming involved in trade associations, making site visits and touring plants.

Also, the firm has bolstered its pool of attorneys, Froehle said. An indication of the clients’ reception of the deeper bench is reflected the firm’s consistent revenue growth since 2012.

paycheck-chart.gifTo maintain its growth, attracting and retaining talent is critical. The firm offers compensation at or near the top of the places where its offices are located. Froehle did not say whether Faegre has joined the movement to raise salaries but he did note the firm is watching the situation very closely.

Hiring strong associates

Because of its revenue, Barrett McNagny did not need to increase rates to pay for the associate raises, Stites said. Best of all, the strategy worked. The firm was popular among law school graduates and has a strong associate group coming.

However, not all law firms have the fiscal health of the Fort Wayne operation. And given the economic pressure some offices are feeling, Eric Seeger, principal at Altman Weil, sees the sudden rash of pay raises as a “bit counterintuitive.” Still once one firm raises salaries, the others follow because they fear the best attorneys will not come work for them.

“Nobody’s going to fail purely because of this decision,” Seeger said of raising wages. “But in firms that struggle to achieve profitability gains from year to year, this is going to exacerbate the tension.”

ryan-john-mug Ryan

John Ryan, president and managing partner of Indianapolis-based Hall Render Killian Heath & Lyman P.C., sees the “arms race” to increase associate compensation as being disconnected from what is happening in the market. In addition to the economic constraints on law firms, the millennials graduating from law schools want more from their workplace than just a big paycheck.

Attorneys today are just as focused on the firm’s location, the type of work they will be doing and who their colleagues will be, Ryan said. They want to be part of a team and work in a collaborative environment, handling significant tasks but still able to have a life outside of the office.

When she graduated from Indiana University Robert H. McKinney School of Law in 2011, Jenai Brackett looked for a law firm position where she could be part of a collegial environment but not have to devote “crazy hours” to the job.

Salary, too, was important. A native of San Antonio, Texas, Brackett has student loan debt from having to pay out-of-state law school tuition.

She is now a senior associate at Frost Brown Todd LLC in Indianapolis. She feels she is fairly compensated, having the ability to pay her loans and cover her living expenses with some left over. Just as significantly, she believes she is getting the hands-on litigation experience and learning the skills she needs to make partner at the firm.

orear-kevin-mug O'Rear

At Notre Dame Law School, the graduates are a lot like Brackett. They want to feel valued, get good training and have a work-life balance, said Kevin O’Rear, assistant dean for academic and student affairs. Also, pay is important since, like other young lawyers, they have to pay off quite a bit of debt.

They tend to differ from Brackett in their future plans. She hopes to spend the rest of her career at Frost but O’Rear said today’s graduates in general view associate positions as short-term arrangements.

Seeger concurred, saying associates are becoming more mercenary. The path to partnership has become longer and more difficult so they are chasing short-term gains like high compensation.

Partnering with clients

barber-linden-mug Barber

Recently, D. Linden Barber, managing partner of the Indianapolis office of Quarles & Brady LLP, included a junior associate on a trip to meet an out-of-state client. This was part of his strategy to give young attorneys an opportunity to develop professionally as well as the ability to start long-term relationships with clients.

In today’s market, firm lawyers are having to partner with in-house counsel, he said. Corporate clients are demanding responsiveness, substantial experience and clear assessments of budgets. They want outside attorneys to help them achieve the company objectives and if they do not get that, they will go elsewhere.

People are important because as Barber pointed out, “Clients hire lawyers, they don’t hire law firms.”

To attract top talent, Quarles & Brady emphasizes its professional and personal offerings, including allowing attorneys to be entrepreneurial in delivering legal services, and community volunteer opportunities.

“It’s important to pay fairly,” Barber said. But “more and more, we see compensation is not the only factor and is not necessarily the number one factor.”

Noack Noack

With student loans to pay, money was important to Sarah Noack, a 2016 graduate of Indiana University Maurer School of Law. However, compensation was not as important as job location, work environment and reputation of the firm.

She believes she is getting the best of both worlds by being hired for Faegre’s Fort Wayne office. She will be able to work on complex cases but do so in a firm that is close to her family. Also, having worked as a summer associate at that office, she saw the women there were successful attorneys and still able to raise a family, which assured her she could have a full life outside of work.

Joining a law firm, she said, is giving her economic stability as the profession changes.

“I feel that at a large firm you are a little more secure with changes in the economy, a little more secure in your job and a little more secure in having the resources for any case you have to deal with,” Noack said.•

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