It was bound to happen eventually. Over the past year, as the downtown legal market continues to thrive, the largest firms in Toronto have increased the starting salary for first-year associates for the first time in more than a decade.
When the 2008 financial crisis throttled the global economy, it dealt the legal market a major blow. As a result, associate compensation on Bay Street flatlined. At most large firms, first-year associates earned either $100,000 or $105,000. With the new increase, they now take home, almost uniformly, $110,000.
The first firm to hit that number was McCarthy Tétrault LLP. In late 2017, the firm adjusted its salary grid (along with most of Bay Street) in response to Fasken, which gave its mid-level associates a raise that summer. McCarthys increased the base salaries for its mid-level associates, but it also gave its rookie associates a raise from $100,000 to $110,000. In short order, that became the standard starting salary on Bay Street. (There is one notable outlier: at Davies Ward Phillips & Vineberg LLP, first years earn $130,000.)
The rationale for the latest batch of pay hikes? “The market is booming,” says Emily Lee, a co-founder at Alt Recruitment Partners. “There’s been an uptick in the number of associates taking in-house roles and moving to competitors. It’s purely a retention play.”
Christopher McKenna, the manager of student-recruitment programs at Bennett Jones LLP, has seen this phenomenon firsthand. “It’s no secret that when firms lose first- and second-year lawyers, they’re disappointed,” he says. “That has started to happen more often.” Bay Street had no choice but to respond. “I think firms have had to raise salaries to remain competitive with the opportunities in the market. We want to continue to retain our best talent.”
It’s certainly true that when firms lose their most junior associates, it is particularly painful. “Associates are long-term investments,” says Jordan Furlong, the principal of the legal-consultancy firm Law21. “In their first couple years of practice, they can’t really bill clients for half of the work that they perform. If associates were paid in direct relation to the amount of money they bring into the firm, they wouldn’t earn much more than $50,000.” Once they reach their third year, explains Furlong, their billings take off and they start to bring in real money. But if they don’t stick around to that point, the firm will never see a return on their initial investment.
Turning to the future, will associates have to wait another decade for their next raise? “That would surprise me,” says McKenna. “I foresee firms constantly reassessing their compensation structure.”
This story is from our Winter 2018 Issue.
Illustration by Sara Wong