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Legal Talent & Inclusion

Why the associate compensation market is nuts & won’t work for long-term retention

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 5 minute read

The steep climb in compensation of the new associate class at law firms around the country is threatening to cut into the strong legal demand the industry is currently enjoying

During the second half of 2021, law firms saw demand for legal services and profitability remain robust, but the 10% associate pay increases driven by a tight labor market cut into their collective profit margins.

To help understand why associate compensation is out of control and how law firms are investing in more effective long-term retention tactics, we sat down with Sanford L. Michelman, Chairman and founding partner of Michelman & Robinson (M&R); and Nikki Simon, a shareholder Greenberg Traurig (GT) and the firm’s Chief Diversity, Equity & Inclusion (DEI) Officer.

Both felt that the factors driving the hot lateral hiring demand are multifaceted and are a combination of trends both within the legal industry and those across multiple industries. Indeed, there have been a number of factors across all industries contributing to the tight labor market in 2021, and the realities of the on-going pandemic — including the lock-downs, the collective grief from the number of deaths, social factors, and the overnight nature of the loss of pre-pandemic life, as we knew it — likely have stretched out how long these challenges will last.

Within the legal industry itself, the ongoing strong demand for legal services during 2020 and 2021 combined with many of these meta-factors have exacerbated the tight labor market and driven outsized compensation increases for lawyers who move from one employer to another, according to Michelman and Simon. Increases in compensation have shown up in starting salaries for new associates, as have annual bonuses and large signing bonuses to recruit talent from an existing employer.

While salary is a worthwhile recruiting and retention tool and paying people fairly is a must, money alone won’t result in retaining talent for the long term. As the new State of the Legal Market report from the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute explains, other additional retention factors are critical to consider, including incentivizing loyalty, providing career growth, and prioritizing culture and connection. Both Michelman and Simon describe how their firms are demonstrating use of these actions proactively for retention.

Michelman says he was not surprised by the tight labor market and the scale of using money for recruiting. In response, he pre-empted the issue for the attorneys and staff at his firm by doubling bonuses in 2020 and increasing associate salaries to $230,000 in early Q4 2021. In addition, the firm took proactive moves to invest in culture and career development and expand leave and financial well-being benefits to retain talent. Specifically, the firm targeted areas such as:

      • Culture — “We decided early in the pandemic that we were going to put a tremendous amount of attention on culture by sending everyone yoga mats, Fitbits, Kindles, and Roku sticks and by offering virtual nutritional and workout services to every employee,” Michelman says. “We used gamification to stay connected.”
      • Talent and career development — At Michelman’s direction, the firm’s chief advancement officer expanded the firm’s skills development program by adding a layer of coaching and mentoring to better increase transparency on the competencies and results necessary for promotion. Each department at M&R outlined the skills, attributes, and knowledge necessary for an ideal partner in the practice. These outputs are used in semi-annual meetings between the practice leader and each associate around how the associate is progressing in their development.
      • Financial well-being — M&R partnered with a national bank to offer its employees who were first-time home buyers a 2.75% rate on 30-year mortgages and negotiated low rates on a personal line of credit and for re-financing student loans.
      • Leave — The firm also got rid of aligning paid time off (PTO) to tenure. Now, M&R empowers people to take PTO when they want as long as they are meeting their job responsibilities and performance expectations.

Greenberg Traurig took a different approach and stepped up investments in belonging and talent development as long-term moves for retention, Simon explains. The firm is helping its lawyers reflect on how they are growing as attorneys, expanding who at the firm is invested in their success, and bringing transparency to visualizing a path forward at the firm, she says.

Specifically, in the belonging space, the firm has continue conducting well-being check-ins with all of its attorneys. GT also launched its social, racial, and economic justice action and now offers 50 billable credit hours for DEI matters and a 25-hour credit for community and civic interests. This is in addition to its long-standing billable hours program for pro bono work, which often addresses the legal needs of underrepresented, diverse individuals.

As part of its belonging investments, the firm has prioritized feedback from its professional and business staff (aka allied professionals) as well as attorneys. Even before the pandemic, the firm saw the need to increase belonging efforts for allied professionals because they are the “backbone of the firm,” Simon says, adding that she and her colleagues conducted office-by-office listening tours with their allied professionals to ask for feedback on how well the firm is doing on addressing their needs as well as identifying areas where the firm could improve. Firmwide, GT has conducted numerous such conversations, which have been well received, she adds.

Expanding retention investments beyond compensation is not an easy process, but decisive action in these areas will result in a competitive edge. The ugly alternative of too much work and not enough people to meet demand is an increasingly losing proposition for legal organizations because it exacerbates the burn-out of those who have remained loyal employees.

Learn more about legal talent trends

Join the upcoming Thomson Reuters webcast, “Stop the Great Resignation: Strategies for Reducing Law Firm Turnover” on Wednesday, March 16, to learn more about the forces that are driving change in the legal talent market and how best to react to them. Register here.