On the face of it, raising salaries seems like an attempt by Simpson to (1) gain a marketing advantage over its competition as being a "leader" in associate compensation; and (2) put a brake on the departure plans of some of its associates.
As a practical matter - both effects will be short lived since Simpson's competitors will clearly be matching these numbers in very short order. Simpson's associates know this already - so I suspect that the associate-retention value of the announcements will, in the mid-term, be relatively slight.
Needless to say that Lawcruiters everywhere celebrate salary wars as much as they pine for the days when all of their clients paid 30% commissions - but I also think, when the hubbub dies down, that we, our clients and candidates, should all be asking ourselves the following questions:
- Was Simpson's announcement planned at bonus time? We all know that, despite record profitability in the AMLAW 100 community, associate bonuses for 2006 bonuses barely matched those paid in 2005 - and, adjusted for inflation, were significantly lower then the bonuses paid in 2000 when senior associates were clearing $100,000. In other words, does the raise represent a deferred bonus?
- Is this a sign of strength or a sign of weakness? I have heard some comments to the effect that Simpson and Kirkland's booming private-equity practices permitted them to take leadership positions in the bonus wars (Kirkland) and in this opening salvo in the 2007 salary wars. And yet - Kirkland did not match inflation-adjusted 2000-level bonuses; and Simpson can also be seen as doing little more then deferring the pain their profitability numbers would have sustained through bigger 2006 bonuses, as well improving their cash-flow for FY2007.
- Are the raises big enough? Well, no, says the average overworked associate while comparing her paypacket to her Wall Street chums. A 28% raise for first year associates (over the $125,000 base they were paid in early 2006 before the bump to $145,000) sounds great. But that still amounts to less than 4.5% raise, per year, since the end of the dot-com pay wars in 2000 - which is slightly more than the average inflation rate for the same period - not counting real-estate prices and partner salaries of course!
- Why so stingy in the upper classes? Insofar as senior associates are among the most profitable and knowledgeable members of a law firm - it baffles me that the numbers offered are as low as they are - especially in light of the hours these folks work, and given the relatively negligible effect that paying up for these folks would have (given how few of them there are) on the firm's bottom line. This is particularly the case as the market increasingly tightens for this kind of irreplaceable intellectual capital. Which means - I suppose - either that Simpson is doing something right (and yes, loyalty and cultural ties mean a lot in associate retention matters) or that Simpson's competitors have not fully comprehended how undervalued these associates currently are.
