What Determines “Market Rate” Salary For Candidates?

One question that candidates often ask legal recruiters is “What is the going market rate in terms of salary for someone with my experience?” The question is certainly a reasonable one, but the answer, and the forces driving that answer, aren’t necessarily what all candidates expect to hear.

I’ll begin this discussion by noting that one factor which really has no significance in setting a candidate’s market value is what the candidate feels they need to earn. Put so starkly that might seem obvious: What you might need can’t really be expected to determine what employers will be willing to pay. However, I mention this nonetheless because in my experience a surprisingly large number of candidates seem not to have really internalized that message. On quite a few occasions when I have advised candidates that they will likely command a lower salary than they anticipated the candidates have responded (with varying degrees of indignation) along the lines of “What??? No, I can’t live on that. Why, that wouldn’t even cover my expenses!” To which the harsh but honest answer is “Sorry, but the market just doesn’t care.” While a candidate’s current financial situation is of course a subject of great immediacy and importance to them it is simply not a factor which potential employers will be much moved by in determining the compensation they are willing to offer. Yes, there may be those rare employers who might on occasion slightly improve an offer in light of a candidate’s financial constraints, but in my many years as a recruiter I have yet to see a single instance where that consideration led to a really significant change in an offered compensation package.

Only somewhat more significant to a determination of market value for many candidates is what they currently make. That this factor is not more determinative seems surprising to a good number of candidates. After all, they reason, if I’m making X at my current firm why shouldn’t I be able to make X elsewhere? (Or perhaps even more than X, since there is evidence suggesting that most employees tend to believe, rightly or wrongly, that they are presently being paid less than they are worth—In fact, a study cited in the Harvard Business Review found ⅔ of employees who were actually being paid at market nonetheless believed that they were underpaid). However, the reality is that current compensation does not necessarily represent a floor (or a ceiling) with respect to what the market might bear. A sad but all too common illustration: A partner who has been at a large firm for 20+ years with $100,000 in portable business and making $400,000 will typically find it very difficult to land a new position offering similar compensation. As a much happier example, last year I placed a patent associate moving from a small boutique to a Vault 100 firm who was able to almost double her salary because the hiring firm needed someone with her background and could bill her time at a much higher rate. It is also worth noting that in the future market compensation will very likely become more untethered from a candidate’s current salary in those jurisdictions (such as New York City) which have passed laws prohibiting employers from asking candidates about their salary history. Far from determining what is “market”, present compensation may in many instances no longer even be a factor in that calculation.

So, if a candidate’s needs and current compensation don’t really establish that candidate’s market value, what does? The answer is, in principle, quite simple: what you are able to command from a particular employer will ultimately rest upon what you are financially worth to that employer. Here are some specific examples to show how this basic rule plays out in the real world for partner and associate level candidates:

• Partners with significant portable business can expect to make 33-40% or more of their originations, since this still leaves a significant potential profit for the hiring firm.
• A partner with little or no business can find the market to be quite inhospitable unless they can find a firm which has existing spillover work that needs to get done. So, the partner with a $100,000 book of business who I referred to above might actually be worth $400,000 to a firm which happens to already have work in that partner’s practice area which they cannot presently service, since that work can be funneled to the new partner and his or her time billed to the firm’s own existing clients. (This example also demonstrates the limits to the entire concept of a salary “market rate”, as a candidate’s value may actually be very different to different firms depending on their respective circumstances/needs).
• Market salary for associates at BigLaw is usually relatively easy to determine and is largely set by a few firms residing at the top of the pyramid. Once the market-leading firms (you know who they are) determine what an associate is worth to them, most other large peer firms generally feel compelled to follow that lead rather closely so as to remain competitive in the hunt for top talent.
• Perhaps the most difficult segment of the market about which to generalize in terms of “market rate” salary is that for associate-level candidates at smaller firms. In that space, it is much harder to speak broadly about “market rate” because there are a wide range of variables impacting a candidate’s value to a prospective employer, including the following:
  1. A firm’s practice, clients and billing rate. An IP boutique representing large companies in complex “bet the company” patent litigation and charging hourly rates comparable to those at BigLaw firms may be willing and able to offer associates much higher compensation than a comparably sized general practice firm providing counseling and transactional support to middle-market and smaller clients at a lower hourly rate.
  2. The size of the candidate pool. For example, an entertainment boutique may be able to offer considerably lower salaries and still attract numerous candidates. Any particular candidate’s worth to such a firm is shaped in part by the law of supply and demand: where there are lots of good candidates seeking a type of position which is in relatively short supply the value of any particular candidate for such positions is diminished.
  3. Lifestyle. Not all small firms offer lifestyles significantly different from their larger brethren. All other things being equal, firms that expect more hours from their associates derive more profit from them, and are therefore in a position to offer higher salaries. Conversely, candidates looking for a lifestyle improvement should be at least somewhat skeptical about whether they can actually find that at a smaller firm which is equal or close to larger firms in terms of salary.
• Finally, with respect to in-house positions, although compensation varies by industry candidates can typically expect to take a salary cut of 20-25% or more when moving out of a firm to a company. There are two main reasons why candidates are ordinarily worth less to an in-house employer as opposed to a law firm. First, supply and demand again plays a role: good in-house jobs usually attract a large number of candidates and the candidate supply typically far outpaces employer demand for such positions, which as noted above depresses the market value of any one candidate. Second, while attorneys at law firms are essential profit generators, those same attorneys become cost centers to a company once they move in-house.