Junior Salaries Rise as Top Companies Struggle with Young Employee Retention

By Kelly Anderson July 6, 2021

​New York City law firm Milbank LLP made headlines earlier this month when it announced that junior lawyers will make more than $200,000 in their first year of work. The decision marks the latest pay increase among elite law firms and is part of a broader trend in rising compensation for entry-level employees at top white-collar jobs.

Investment banks, management consultancies and other selective companies are increasing pay for recent college graduates in an attempt to win over talent and retain young employees despite growing concerns over the demanding nature of corporate work culture, according to employment experts.

Apollo Global Management, a private equity firm based in New York City, decided in March to offer retention bonuses of up to $200,000 to junior associates—who already earn a starting salary of $450,000—amidst complaints of long hours and intense workload, according to Business Insider. Bank of America and Credit Suisse announced plans this spring to increase junior bankers' salaries by $10,000 and $20,000, respectively, citing the need to improve work culture for young employees. The raises brought first-year banking associate pay at each investment bank to more than $130,000.

Record Profits Enable Surge in Entry-Level Compensation   

Booming markets and generous quantitative easing policies in the second half of 2020 drove a surge in business for top corporations, according to Ken Kuk, who advises law firms and management consultancies on compensation matters as a senior director at Willis Towers Watson.

Private equity firms and banks benefitted from historically high market evaluations, and law firms raked in revenue while cutting travel costs, leaving executives with higher-than-usual profits. "It's making it easier for these organizations to use pay as a differentiator," Kuk said.

Work/Life Imbalance Drives Junior-Level Attrition

Even the most prestigious companies have struggled to retain junior employees in recent months as the mental toll of the pandemic and demanding expectations drive out young talent. 

"There's a shortage of experienced junior people," said Alan Johnson, who is the managing director of Johnson Associates, a compensation consultancy that works with financial services firms. Landing a job at the most high-paying Wall Street companies is fiercely competitive among recent graduates. Retaining those employees, however, has caused headaches for executives.  

A group of junior analysts at Goldman Sachs recently complained of "inhumane" work culture at the New York City investment bank, citing 100-hour workweeks and the breakdown of their physical and mental health. The complaints led to a response from Goldman CEO David Solomon, who pledged to reduce the workload for young bankers.  

Some experts say that increasing salaries at top companies does little to dissuade junior employees from quitting, especially when those workers already receive entry-level compensation totaling more than six figures.

"I think that increasing pay is naturally the way that they're going to go to when they need to address talent retention issues, because they don't really have other things to fall back to," Kuk said.

Competing for Talent

The shortage of experienced, young talent has pushed law firms to find ways to differentiate themselves, a task usually addressed by increasing compensation, according to James Leipold, executive director of the National Association for Law Placement, an organization that collects data on industry hiring trends.

"By raising salaries, they're trying to be competitive. They're trying to retain more of their entry-level talent so that they're not stuck in this lateral competition," said Leipold. Law firms have ramped up "lateral hiring," or acquisition of experienced attorneys from other firms, by as much as 50 percent in the last six months.  

Salaries in the legal industry typically rise after a few of the largest firms decide to increase pay. Milbank's announcement prompted a wave of pay increases for junior associates at other top firms, including New York City-based Davis Polk & Wardwell LLP, which unveiled plans for an even larger raise for first-year associates less than a week after Milbank.

An 'Ecosystem' of Competitive Pay

Junior compensation plays a large role in giving employers an edge against competitors. Many professional services firms compete against one another to recruit talent from top universities. Offering higher salaries than industry rivals can help win over young talent, according to Johnson.

"I think they're part of the same ecosystem," Johnson said of major corporate jobs. "Many of those people recruit at the same schools, the same MBA programs, so coming out there's similarity in pay and opportunity."

Many companies participate in salary planning surveys to determine compensation levels within the industry and across different positions. That planning has taken on heightened importance this year as employers handle a surge in pandemic- and stress-driven departures by junior workers.  

"We've told clients that the end-of-the-year pay process this year will be very important," Johnson said. "It's going to be a really important year, and make sure you pay people what you think you have to."

Kelly Anderson is a freelance writer based in Washington, D.C.



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