Law Firms Escalate Talent War Even in Slower Economy | Mint

Law Firms Escalate Talent War Even in Slower Economy

Law Firms Escalate Talent War Even in Slower Economy
Law Firms Escalate Talent War Even in Slower Economy

Summary

Elite firms are in a financial arms race to attract and retain lawyers who bring in big books of business, shelling out millions to poach star partners and in some cases entire practice groups.

A turbulent economy has slowed demand for law firms. You wouldn’t know it from what they are paying for top talent.

Elite firms are in a financial arms race to attract and retain lawyers who bring in big books of business, shelling out millions to poach star partners and in some cases entire practice groups. And as 2023 comes to a close, some notable firms have sparked a salary run, publicly announcing compensation hikes for their attorneys at the associate level, where future stars are born.

“Twenty years ago, it was customary for clients to retain law firms; today, clients increasingly retain star partners, not law firms," said Brad Karp, chair of law firm Paul Weiss. “In today’s legal market, the more stars you have, the more successful you will tend to be."

Karp’s firm earlier this year lost a chunk of its London office to rival firms, including the office’s leader to Kirkland & Ellis and two private-equity stars to law firm Sidley Austin. Soon after, Paul Weiss built out its presence by poaching attorneys from other firms, including about 10 of Kirkland’s London-based private-equity lawyers.

In the U.S., several star lawyers and practice leaders moved between high-earning firms including Davis Polk, Latham & Watkins and Paul Hastings. Firms looking to bulk up also swooped in to acquire entire practice groups from storied New York firm Stroock & Stroock & Lavan, which folded this year.

“Law is a team sport, and we want to win. It is a competitive landscape," said Paul Hastings chair Frank Lopez. “The gap between the top of the market and the rest of the market continues to widen, so we cannot be complacent."

Superstar hires can draw as high as $15 million to $20 million a year in salary, law firm analysts and recruiters say, and this year some top-billing attorneys saw their pay double.

About 75% of large law firms said they are likely to grow through lateral acquisitions, and firm leaders anticipate increasing their equity partner ranks, according to a report from Citi’s law firm group and Hildebrandt Consulting released this week.

“What winds up happening in a challenging economy is the top firms look to attract premier talent as long-term plays," said Kirkland partner Andrew Kassof, a senior leader on the firm’s executive committee.

Karp of Paul Weiss said lateral movement is at unprecedented levels, with no signs of abating. The cost of retaining star talent, he said, has increased dramatically and the pay packages being offered in many cases are irrational.

Some firms feeling the pressure to recruit prominent attorneys with large compensation packages could be placing themselves at risk, said Robin Miller, a partner at recruiting firm CMW Legal Search. Some past firms that failed, she said, such as Dewey & LeBoeuf, made pay guarantees that came back to haunt them.

“They were basically throwing money at the heavy hitters but couldn’t justify it and didn’t have the dollars to support it," Miller said.

Amid the aggressive poaching, a series of firms have unveiled pay raises at the associate level, aiming to preserve or improve their positions in the industry. The first move came in November, when the Milbank firm announced a new tier of raises. Shortly thereafter, Cravath, Swaine & Moore said it would give even larger raises to its associates, a pledge that Milbank then matched. A growing list of other firms have followed, meaning many associates are in line to receive increases of $10,000 to $20,000. At Milbank now, a first-year associate will make $225,000 in base salary, and senior associates could make as much as $435,000.

“In a way, it’s a marketing play, to try to one-up everybody. Or they could want to stick it to everyone else and make it more difficult for other firms to match," said Kent Zimmermann, a law firm adviser with the Zeughauser Group. “That increase is going to squeeze profits for many firms, particularly those not in a position to spend as easily for associates."

Some firms are feeling the pressure to merge as rivals keep growing. That was true for Wall Street firm Shearman & Sterling, which agreed in May to merge with the U.K.’s Allen & Overy after losing partners and struggling to compete. More consolidation is expected as firms vie to compete with the top players, industry analysts, law firm leaders and recruiters say.

If additional firms follow the path of Stroock and dissolve, other players likely will be ready to pounce.

When Stroock announced its closure this fall, Hogan Lovells picked up dozens of its partners, which Hogan chair Miguel Zaldivar said was part of a strategic play to boost the firm’s presence in New York, where it now boasts 200 lawyers, including those who previously worked in Stroock’s respected real-estate practice group.

“We aren’t done," Zaldivar said. “You need to secure the talent and access the best talent to play at the highest level. I’m not surprised some can’t afford it. There are winners and losers."

Write to Erin Mulvaney at erin.mulvaney@wsj.com

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