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Texas Law Firms Raise Associate Salaries

March 14, 2006 in Law | 5 comments

As I noted in a previous post, and as the WSG Law Blog has reported, over the last few months law firms on the coasts have been raising associate salaries by as much as $25,000 for starting associates. The big Texas firms had held out on raises, but last week Vinson & Elkins finally caved in, raising starting associate pay from $115,000 to $135,000 per year, with concomitant raises for higher grade associates. Andrews & Kurth quickly followed suit, and today, Baker Botts announced it would also raise salaries for starting associates to $140,000, exceeding V&E’s raise. While other Texas firms have not yet followed suit, rumors suggest that several have assured their associates that they will issue competitive raises and will make announcements in the next few weeks.

Many lawyers and law students were surprised at the magnitude of the raises. As one commentator on the Greedy Texas board notes:

Another point that should be painfully obvious is that these raises are totally off the hook. If first year salaries in NY are $145K, there is no reason that first year TX salaries needed to move to $135K. For $145K in NYC you are renting a half decent 2 bedroom apt and are able to get by. For $135K in Houston you can buy a house, drive a beamer, get your chest waxed once a month and buy your mama a gold tooth. While BigTex was definitely headed for a raise, a bump of $10-15K would’ve been more than enough to appease the masses. I think that after coasting past the $1M PPP mark last year, V&E decided that if they were going to have to hand out raises, it would be more fun to give some really big ass raises that would make their counterparts at Akin, FJ, BB etc. gag. And they’ve certainly done just that.

The real question is whether partners will see the raises as part of the cost of doing business in an environment with plenty of legal work and increasing profits per partner, or whether partners will accede to this raise only grudgingly, and expect more work from associates in response to the raise.

Update, March 28, 2006: More Texas firms have raised salaries.

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March 28, 2006 at 8:25 am

Sparkylaw

I can’t make heads or tails of this. My first reaction: this signals that the nationwide salary hikes are far from over–Texas firms now force everyone’s hand to climb to NYC’s new $145 market rate. The Weil Gotshal’s, Gibson Dunn’s, et al, national firms with offices in Texas who enjoyed a comfortable advantage in terms of first-year associate pay suddenly find themselves paying at or below the new market rate! And what about markets in DC, Chicago, and California which, in part, compete with the Texas market?

And where is this money coming from? Will Texas billing rates rise? Will the once relaxed culture of Texas firms take a hit, with junior associates expected to put in longer hours? It’s not like PPP were disproportionately higher in Texas than in other leading legal markets! This pay raise makes no sense to me…some enlightenment please!

March 28, 2006 at 9:13 am

Dan

Sparky, I tend to agree that this forces large firms outside of NY, DC, LA, and Chicago to reconsider salaries. For example, why work in Kansas City, where the prevailing associate salary at the top end of the market appears to be $95k, when you can get a $40k premium for working in Houston, where the cost of living is no higher?

While I can’t speak for the compensation committees at the Texas law firms, I think the raises have been driven by a confluence of factors. First, the BigTex firms had not changed salary structure since the last round of raises in 2000. In fact, as Christine Hurt points out, the annual rate of increase between 1993—when starting salaries where around $45k—and now is about 7.5%. While that beats inflation, it seems somewhat reasonable over a decade or more, especially with a booming legal market.

Second, the money is there. Per partner profits have increased substantially since 2000, with some firms seeing increases of between 50% and 100%. That’s a pretty big jump, and you would expect to see the market demand that some portion of that increase go to associates.

Third, the so-called carpetbagger firms forced the hand of the BigTex firms. Weil and Skadden, among others, both payed well above market in Houston prior to this latest round of raises. Under pressure from the East and West coast firms increasing salaries both in their main offices and in their Houston offices, BigTex firms probably felt they had to increase salaries at some point to remain competitive. I also know that at least some of the carpetbaggers are still above market in Houston, especially for more senior associates.

Fourth, Vinson & Elkins may have felt compelled to jump because of their precarious public image. As they are still subject to potential liability from the Enron fallout, they may have felt it necessary to make a show of strength to potential recruits. In contrast, Baker Botts apparently hired consultants earlier this year to advise on the subject of associate salaries, and those consultants reportedly advised that no increase was necessary at this time. Of course, once V&E raised, BB and the others were forced to follow.

These are just my theories, but I think the increase in salaries are not only explainable, but were predictable. I didn’t expect them quite this soon, but I think most associates expected a raise in the near future.