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Fearing Dot-Com Competition,
Employers Raise Salaries

By Erica Noonan   Associated Press
BOSTON — Here's one more reason for the rest of the world to tell lawyer jokes: Attorneys at one Boston firm got 40 percent raises last week.

Timothy McGuire, partner at Testa, Hurwitz & Thibeault, said the technology law firm doled out the huge pay hikes so that their attorneys won't leave for high-tech companies promising bigger paychecks and lucrative stock options.

Jim Boone, president of The Americas of Korn/Ferry International, the world's largest executive search firm, said companies today face tremendous pressure to keep the best employees.

"Everyone's scrambling for good people," he said.

Lawyers and high-tech workers aren't the only ones enjoying the booming economy. Last month, the nation's unemployment rate hit a 30-year low of 4 percent. Approximately 387,000 new jobs were created in January, the largest leap since September 1997.

The boom means hospitals in Illinois need qualified nurses so badly that they're willing to offer higher salaries, paid tuition, flex time and referral bonuses.

Massachusetts has been trying to lure new teachers with $20,000 signing bonuses, while the U.S. Border Patrol in Texas started handing out $2,000 to new recruits who make it through the academy. Even McDonald's offered $3,500 signing bonuses to new assistant managers.

In the legal field, the competition to retain and attract talent is forcing the kind of pay hikes that make partners wince.

The nation's largest law firm, Skadden, Arps, Slate, Meagher & Flom, last week gave associates 40 percent raises; New York-based Davis Polk and Wardwell hiked salaries by 25 percent.

At Testa, first-year associates will make $140,000 — up from $100,000 — while sixth-year associates will see their annual salaries rise to $205,000.

McGuire said his firm, which counts Lycos, Inc., among its clients, didn't want to risk losing its associates to up-and-coming Internet companies. Judging by the grateful e-mails that flooded management last week, the strategy created some pretty content employees.

"Just wanted to let you know this has created a lot of goodwill in the hallways," read one message. "If anyone still complains, I will personally pop them!"

Still, the firm believes it must do more to hold onto its lawyers. It is investing in companies and passing along stock profits to associates who stay loyal to the firm, McGuire said.

"What do the dot-coms have that we don't? Stock options," McGuire said.

Stock options are being offered to a variety of professionals to sweeten the employment deal.

Though many dot-com companies don't have mega-million initial public offerings, executive-level workers in marketing, sales, computer programming, law, human resources and accounting can become millionaires if a stock booms.

Even mid-level workers making annual salaries of $30,000 to $50,000 are finding themselves beneficiaries of stock options and profit sharing incentives.

"The saying in the industry is, 'Now I know what it's like to be in Sacramento in 1848 for the Gold Rush,"' Boone said. "The excitement runs across many sections of business stratum. It's not just the CEOs and the CFOs."

Some employers look beyond the paycheck. Retailing giant Wal-Mart says it retains employees by offering opportunities for advancement, bonuses based on store performance and a supportive, caring culture.

"Work life issues are what drive us, and they're what our associates tell us they have a need for," said Cole Peterson, vice president of the company's People division.

Of the company's management team, 65 percent were promoted from within. "If you are successful in keeping people you have, you need less people," Peterson said.

But there seems to be no end in sight for compensation packages in other industries.

"For now, it looks like the answer to the whole thing is more, more, more," said Ed Archer, vice president of Pearl, Meyer and Partners, a New York-based executive search firm. "The risk associated with dot-coms are that they are the biggest winners and the biggest losers."

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