Tech Companies Hire In-House Attorneys
From the Alley to the Valley and all Silicon centers in between, tech companies are raiding corporate law firms of their top associates.
The dot-coms and start-ups realize it is cheaper and of more benefit to the company to retain an in-house lawyer. They’re hiring lawyers with knowledge in start-ups, venture financing, initial public offerings, acquisition, intellectual property work and litigation, and securities litigation. And they are paying top dollar.
They lure the young lawyers with promises of more responsibility, increased pay, an inside position in a growing company and the most coveted prize of all , stock options.
And what are the law firms to do? They can’t hand out stocks that don’t exist. Equity is already split among tested and proven partners with greater value to the firm because of their experience.
The firms on the San Diego Business Journal’s List of Largest Law Firms in San Diego County are struggling to answer that question as more local tech companies hire more of their attorneys. The trend isn’t slowing and often, members of several firms said, they feel they are competing with their own clients for the good attorneys.
– Some Firms Offer
More Pay, Bonuses
The bigger firms compensate by offering increased pay and bonuses to keep their employees. Brobeck, Phleger & Harrison LLP, No. 3 this week, announced Jan. 17 it would raise first-year associate pay to $125,000 with bonuses that could push salaries to $155,000 after losing a number of associates to tech companies. The base salary is up from $91,000 in 1998 and $55,000 in 1987.
“The law schools aren’t getting any larger, so we’re not getting more on the starting end,” said Bill Sullivan, former Brobeck managing partner and current head of the firm’s securities litigation branch. “People are moving to the traditional law practices (like Brobeck) and so that’s creating some supply, but it’s not enough.”
Sullivan was a member of the panel that approved matching associate pay with the highest paying law firms.
To “directly compete” with the tech companies, Brobeck established an associate stock fund designed to parallel “the stock option idea” that invests in “early stage companies” before they go public.
“When we have a chance to invest in companies, we do that,” he said. “The associates get an interest in that fund as time goes on. It gives them a chance to participate in some early investing in these companies and get some good returns. We hope that measures up a bit against stock options.”
Brobeck is one of the largest law firms in the country. The firm has more than 600 attorneys practicing in every specialty area in every major tech center in the country from New York to Palo Alto and from San Diego to Austin.
Not surprisingly, not all firms can afford to increase associates’ pay. Klinedinst, Fliehman & McKillop, No. 17 this week, recruits the same associates as Brobeck, but can only offer $70,000 a year, firm administrator Shawn Payment said.
– Small Firm Tries
To Promote Benefits
In addition to lawyers jumping ship for tech companies, Klinedinst is having trouble just acquiring first year associates and must emphasize the benefits of a firm with 29 lawyers, considered a small practice. According to The List, the average firm employs 50 attorneys.
“We try to highlight the things that make our firm, hopefully, preferable for them,” Payment said. “No. 1, we can usually offer them much more responsibility at an early point in their career. Most of our associates get the opportunity to actually participate in trials and have a lot of client contact and trial work in their first couple of years of practice with us. Where (at other firms) they’re doing a lot more grunt work.”
Payment said that since the beginning of the year he doubts if there have been any Klinedinst partners or associates “that haven’t received job offers to immediately increase their salaries by a third or double it.”
“That’s just the environment that we’re working in,” he said.
It’s traditional for firms to offer a paid summer associate program to law school students the summer between their second and third years with the understanding they are potential future hires. Klinedinst usually takes in four to six summer associates, but not this summer.
“This year I think right now we only have one slated to come in simply because most of the candidates we interviewed received, what they thought were, more favorable financial opportunities,” he said. “So they went where the money was.”
– Acquiring Staff
From Other Firms
The high salary trend created a ripple effect as firms turned to other firms for lawyers to fill the void. Some raided law firms, like Baker & McKenzie, No. 10 on The List, which scrapped the summer associate program altogether and instead focused available resources on established attorneys.
Baker offers the benchmark $125,000 a year with bonuses, but not the stock plan, senior partner Chuck Dick said. Instead, the firm offers associates the opportunity to practice outside the country for two years to gain international experience.
“One of the things we are doing is redoubling our internal training program,” he said, “and looking for ways that we can make a greater contribution to the professional development of our people.”
To Dick, Baker’s internal training offers the same thing the stock options, associate funds, and immediate court experience does for young associates at other firms; greater financial prosperity in the long run.
“You can see that if somebody had an opportunity to spend two years working in Japan or Hong Kong and could come back to San Diego and say ‘I have now had the benefit of practice experience in this country’, that immediately sets them apart from all of their peers in other law firms and enhances their ability to begin developing their own practice,” he said. “So it gives them something distinctive they couldn’t get at other law firms.”
Whether or not associate salaries continue to rise or stabilize at least one thing is apparent: San Diego attorneys might want to polish their r & #233;sum & #233;s.