Legal Tender

By Karl Taro Greenfeld

Guess who is now going to make a killing from the Internet? The lawyers. Here's the shocking part: What took them so long?

As Internet start-ups draw the best and brightest--or at least the greediest--away from myriad industries, off-line firms ranging from investment banking to media have been forced to increase compensation to keep pace. The latest manifestation of the new wage order is in the legal profession, where promising young attorneys have been abandoning their law firms for Internet start-ups.

To keep legal eagles hungry, law firms are taking some of the money that goes to partners--who typically earn a seven-figure "draw"--and redirect it to associates, who do much of the grunt work at Silicon Valley practices like Gunderson Dettmer and blue-chip New York firms like Skadden, Arps, Slate, Meagher & Flom. First-year compensation packages will top $140,000, up from under $100,000 just three years ago. The higher wages are designed to ward off dotcoms seeking to hire lawyers directly rather than "rent" them through a firm. "The legal industry is unique in that corporations have the option of bringing legal services inhouse or outsourcing them to a law firm," says Robert Major, partner at Major, Hagen and Africa, a San Francisco firm. So law firms are bidding against their own clients for their own attorneys.

Increasingly, the firms are demanding equity stakes in client companies--equity that can be distributed throughout the firm. But there is one advantage to the salaries the law firms are offering: it's all in cash. Or, as Major likes to tell his junior associates, "You can't pay your mortgage in stock options."

--By Karl Taro Greenfeld