Small Law, Big Pay: Small Firms Lure Talent With Hefty Raises

Law360, May 17, 2023

By Aebra Coe

The calculus for associates is shifting when it comes to the age-old debate between joining a small firm or BigLaw, according to legal recruiters, and one major factor that's muddying the math is a narrowing of the historic gap in compensation between the two.

Data released recently by the National Association for Law Placement shows that small law firms have, on average, outpaced the largest law firms when it comes to increasing their compensation between 2019 and 2023. Even as BigLaw handed out what were by all measures substantial raises, law firms with 250 or fewer attorneys as a group increased base pay at an even faster rate, according to the data released by NALP.

That means the gap in pay between small law firms and the giants, which for decades was massive, has narrowed. And associates have taken notice, according to recruiters.

Eliza Stoker, an executive director at recruiting firm Major Lindsey & Africa, said that as the industry watched compensation at a number of smaller firms go up, the calculus began to shift for candidates who once may have considered BigLaw as their only option.

"[Salaries] were coming up enough to where a certain kind of associate was more willing to have that conversation," Stoker said.

Michelle Fivel, a partner at recruiting firm Hatch Henderson Fivel, said that for a long time associates were attracted to a number of the perks of working at a small law firm, such as substantial roles on matters and a clear path to equity partner, but that for many the discrepancy in pay was too large for a move to a small law firm to make sense.

"It's that compensation piece that has been a stumbling block," Fivel said, particularly among junior associates still working on paying off large student loans. "The shrinking of that delta is definitely something that's very interesting to associates." 

In 2019, average base pay for first year associates at law firms with 100 or fewer lawyers was $110,000, compared to the $180,000 average for law firms with more than 700 lawyers, according to the NALP data. That means small law firms were offering about 61% of BigLaw pay.

In 2023, however, that average starting pay rate rose to $155,000 at the small firms, compared to $215,000 at BigLaw firms. With the change, small firms' starting pay rose 11 percentage points, to 72% that of large firms.

Similar increases occurred at law firms with between 101 and 250 lawyers, and at all seniority levels from first year through about the fifth year for both firm sizes. For more senior associates, the gap does not appear to have closed substantially.

There are a number of factors that have prompted small law firms to raise pay at a fast clip, according to recruiters. For one, in the midst of the BigLaw hiring frenzy from the end of 2020 to the beginning of 2022, small and midsize law firms lost a significant amount of talent to large law firms, and now they realize they need to take action to attract associates to perform work already in their pipelines.

"Right now it's to the point where smaller and midsize shops need the resources to get the work done and be profitable," said Raj Nichani, president of recruiting firm The RMN Agency.

Particularly in an uncertain economy where many corporations are looking for law firms with lower billing rates, these firms have been able to secure clients, he explained.

"They've had to change their model for compensation in order to attract that talent," Nichani said.

Another likely factor is BigLaw's influx into smaller, regional legal markets like Salt Lake City, Atlanta and Denver over the past several years. According to Nichani, who is based in Atlanta, pay tends to inch up across a market as regional firms are forced to compete with BigLaw entrants for talent.

The pay increases appear to be a win-win-win, the recruiters said, with more attractive options to go around for associates, more talent for small law firms and no major drain on BigLaw. After all, large firms shed associates as a regular practice in any given year, but are doing so especially now amid slower demand that followed a hiring frenzy.

"The bigger firms are OK," Fivel said. "They're built like a pyramid so that not everyone who starts there stays. They're OK with high-quality alternatives for associates who are leaving."

As smaller firms look to remain competitive by offering higher pay, they need to remain vigilant that they're not sacrificing other areas of their cultures that have long been a draw for talent, according to Carla Khalife, a senior legal recruiter at Swan Legal Search.

"These firms have to be careful because the large compensation hikes are likely to put pressure on these smaller firms to squeeze more profitability out of their associates," Khalife said.

That could mean higher billable hour requirements, potentially bringing a "lifestyle firm" that currently requires 1,500 or 1,600 hours a year in billables closer to the BigLaw threshold.

"People want options, and they already have BigLaw with big salaries and high billable hours," Khalife said. "For folks who want a different option, many are willing to trade a higher salary for a better lifestyle and lower billable hour requirements."

--Editing by Alanna Weissman and Kelly Duncan.

https://www.law360.com/pulse/articles/1678169