AXP American Express Company

New York law firm Cravath, Swaine & Moore LLP is raising base salaries for its junior-most lawyers by 12.5%, its first increase in nearly a decade and a move likely to trigger a wave of similar hikes throughout the legal industry.

As of July 1, new first-year lawyers at the firm will now get $180,000, up from its longtime standard of $160,000 for law-school graduates, according to a Cravath memo reviewed by The Wall Street Journal. The increase lifts pay from there: fourth-year lawyers, for instance, will make $235,000, and eighth-year lawyers will earn $315,000. Associates often get year-end bonuses on top of base salaries.

The increase is likely to spawn copycat moves from Cravath's competitors. Law firms compete for the same pool of top-tier graduates, and salary is often viewed as a deciding factor. Large corporate law firms are often quick to match what market leaders like Cravath pay.

Already, a few law firm partners indicated on Monday that they would match. "No doubt we will be raising as will other firms," John Quinn, co-founder of litigation powerhouse Quinn Emanuel Urquhart & Sullivan LLP, said in an email. "This market is very efficient in that way."

The last major uptick happened in 2007, when Cravath and others boosted first-year pay 10% to $160,000.

Since then, the market for junior lawyers and the economics of big law firms have changed. Facing client pushback, law firms are less likely to charge for the work of first- and second-year lawyers, making it difficult to justify higher salaries. Profits have slipped by tightening demand for law firms' services since the economic downtown.

At the same time, new lawyers face mounting expenses. Law students frequently graduate with more than $100,000 in debt, and rent and health-care costs are up in major cities across the country. Cost of living in the U.S. has risen by a few percentage points most years since 2007, according to the Social Security Administration.

The head of one New York law firm said Cravath's pay-increase timing seemed odd, since salary decisions are usually made at year-end, but that his firm would match it. Clients facing tight budgets likely won't view the decision favorably, he said, adding that "the signal [to the market] is one that I'm glad somebody else has gone first on."

Kent Zimmermann, a Chicago-based law firm strategy consultant with Zeughauser Group, said the raises appear to be as much about holding on to current talent as recruiting new lawyers. "It's a tough time generally to retain today's best associates," he said. Many junior lawyers are finding an increasingly difficult path to the top at big firms and securing attractive job opportunities outside of such firms.

In recent years, a small group of elite law firms, including Cravath, have pulled away from the pack and continue to be highly profitable while others have had a tougher time keeping pace. Cravath, which counts among its clients J.P. Morgan Chase & Co., American Express Co., International Business Machines Corp. and Johnson & Johnson, brought in $666.5 million in revenue last year, according to the American Lawyer magazine. Its partners took home average profits of $3.56 million, lower than just five other U.S. firms.

Nationwide, less than half of new law school graduates take jobs at law firms, and even fewer land at big corporate firms. The median salary of 2014 law school graduates was $63,000, according to the National Association for Law Placement.

Write to Sara Randazzo at sara.randazzo@wsj.com

(END) Dow Jones Newswires

June 06, 2016 18:45 ET (22:45 GMT)

American Express (NYSE:AXP)
Historical Stock Chart
From Mar 2024 to Apr 2024

American Express (NYSE:AXP)
Historical Stock Chart
From Apr 2023 to Apr 2024