"Well," you can hear some crusty curmudgeon mumbling into his brandy and soda, "they've finally taken leave of their senses." First year salaries at Bay Area firms jump to $145k, sort of. "Base" salaries seem to be settling in at $125k and then either a guaranteed or a discretionary bonus of $20k to $25k brings the compensation up to the $145k mark. Let's put aside for the moment the differences between guaranteed bonuses and base compensation (whatever they are) and whether a discretionary bonus will differ in practice from a guaranteed bonus. Let's also put aside for the moment whether the associates are "worth" such high salaries. We do know one thing. Law firms raised first year salaries (which forced increased adjustments for associates at all levels) because they believe this increase will help them attract and retain associates. Will it?

We work with associates every day who are considering making a move from their present law firms. Money can be a factor, but it is rarely the dispositive factor. It might be useful to divide the associate candidate pool into two categories: locals and out-of-towners. Most local associates don't want to move to another law firm anyway. They want to go in-house. Will these increases staunch the flow of talent to the corporate world? In a limited way the answer is yes.

These increases will have no impact on associates who are lucky enough to be candidates for in-house jobs at pre-public companies. The equity upside that is typically present in these opportunities usually runs into the millions (once fully vested--usually a four year wait). Law firm salaries will never be competitive with these option packages.

Staff level positions at established companies with substantially smaller options packages are a different matter. These increases might very well serve to retain an associate who might have considered jumping into a Corporate Counsel position at one of the bigger technology companies. These companies were already 10% to 20% below law firm market salaries before these increases. Now, they are fully 40% to 50% below. Lifestyle is one thing; but these pay cuts may be too much for associates to swallow. They will be more tempted to stay put and wait for the pre-public bonanza package (if it ever comes).

Won't the established companies just match, or come close, to the new law firm market salaries? Unlikely. These increases blow through established compensation ranges within the companies. Matching them would force companies to readjust their compensation matrix for all of their employees. It won't happen. Companies may be able to offer modest cash increases and option packages might improve somewhat, but here again companies do not have a lot of flexibility. Option pools are limited and companies will be unwilling to make significant exceptions for staff, or even director level attorneys.

The out of town attorney (and here we are thinking mainly of New York lawyers who have traditionally enjoyed higher compensation levels than their Bay Area counterparts) may be more attracted to a Bay Area law firm as compensation levels now meet or exceed New York levels. But if all of the major Bay Area firms match the recent increases, then money alone will not be a distinguishing factor between the firms. These increases may make it more likely that a New York lawyer will relocate to the Bay Area, but if everybody is at roughly the same level, it will not make it more likely that the New York lawyer will join a particular firm. Still, the chances of landing someone who is at least considering a relocation are better than if they can't move at all because the compensation differences are too significant. Our guess is that we will see more New York lawyers making the move to the land of red tile roofs and sunshine.

Let's remember one last thing. The increases for first year associates are coming straight out of the partners' pockets. Will more hours be required of the associates to pay for the increases? The firms say "no" as a technical matter, but will greater everyday pressure be applied to young lawyers to bill more hours? Will young associates be required to work "smarter" so that less of their time is written off? Can firms raise associate billing rates to pay for the increases? Cut backs in other areas like paralegals or adminstrative staff? If there is a downturn will the increased cost structure hasten layoffs? We'll have to wait and see. In the meantime, let's just enjoy it.