Philalawyer.net
Philalawyer.net

$160K (You're Selling Yourselves Short) - June 19, 2007

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I promised my editor I'd stop writing about law, but some issues just drag you back in....


The latest convulsion in the legal community involves a jump among top tier firms to $160K for first year associates. Many say this is absurd - that these new lawyers could never be worth that much money. That's immaterial. The market is what the market is, and $160K is below, not above, what the market should be paying first year associates.

I can't get into every element of associate compensation, and I'm not going to get hyper-detailed in this off-the-cuff analysis. I'll focus on four simple points.


1. Partner Profits

Yearly profits per partner at some firms in Philadelphia are in excess of $1,000,000.00. Those numbers derive in substantial part from aggressive cost cutting. There has been a vicious weeding out of "service partners" over the past few years, and most associates who stay at a firm long term are now shuffled into "non-equity," "membership" or "of counsel" status as opposed to real partnership, causing the partnership pie to be cut a lot less.1 Still, $1,000,000.00 plus in a place like Philadelphia? There are clearly more crumbs to hand out.


2. Does the "Rule of 3" apply anymore?

Firms used to assess associate profitability based on whether the associate realized three times his salary. But that was when firms were carrying numerous practice groups which weren't profitable in order to provide a full service platform to clients. Those "loss leader" departments have been jettisoned over the last few years. Firms have also been hiring contract lawyers from temporary staffing agencies at a small fraction of the cost per hour of an associate to do much of the commodified grunt work associates did in the past. These are just two of many cost cutting measures utilized.

If firms are cost-cutting so dramatically, are they still using the Rule of 3 or something close to it to determine how much to pay associates? And if they are, given the change in the cost structure, why? Is it possible they are using the salary increases as a justification to move up their own draw at a rate in excess of the associate raises? The difference between the partners' increased take and the associates' increased take since the start of the salary wars may be a hidden partners' margin from which associates could derive a salary more in line with the value of the services and economic benefit they provide to the partners. Which leads to the third issue...


3. Associates need as much money as they can get

Law is a business, and the people who are now and will in the future get paid seriously are those with clients. Very few associates can expect to generate anything approaching the seven figure book of business that is necessary for job security in the lateral market. Many will be shuffled off to in house jobs or forced to work for substantially less at smaller firms or kept in less lucrative non-equity positions for years. Many view working at large firms as a short term way to pay off loans over five to eight years, and the firms in turn view them as fungible labor. Assuming most associates have anywhere from $80,000.00 to $150,000.00 in student loans (an average debt load which will increase, tuition hikes tracking associate pay increases), and assuming when they leave the big firm world they'll have to take a pay cut, often around the same time they are building families, associates need all the money they can get. A lot of older attorneys or those underpaid at smaller firms scoff at this idea, suggesting these top level associates are a thin slice of lawyers who are already grossly overpaid. Maybe that's true, but as their salaries go so go everyone else's. Shut your mouth.


4. $190,000.00 is a better number

Let's assume a first year associate at a top tier firm has or will have will have a billable rate of $300.00 to $350.00 per hour. If he works 2200 hours and realizes only 75% of his billable time, the firm will generate between $495,000.00 and $577,500.00 on his labor. The firm still receives a premium above the adequate margin it reaches at 2 ½ and 2 ¾ times his salary under the new stripped down cost structure, and he gets enough money to build a nest egg for the likely day when he has to jump and take a cut or see his income plateau.


I don't suggest this as something partners should be compelled to do out of fairness. The responsibility for pushing the market rate higher falls on associates. Don't let the wave you've got behind you crash. Start hitting the internet...


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1 For non-lawyers, "service partner" = equity partner without business.

Posted by PhilaLawyer at 2:05 PM

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Comments

dont stop writing about law

Posted by: alex at June 19, 2007 02:20 PM

thank you for the insight

Posted by: Ryan at June 19, 2007 04:26 PM

Don't stop writing about law.

I am NOT a lawyer. I dislike lawyers. Still, I think your spin on things, particularly law is fascinating. Please continue to write about law, as well as other topics.

Posted by: long time reader, since blogspot.com days at June 19, 2007 06:58 PM

i agree. don't stop writing about law

Posted by: luke at June 19, 2007 08:03 PM

I can't tell you how vividly you capture the atmosphere...partners are all about themselves...of course they operate under the pretext that their actions are for the benefit and future of the firm...but they are out for a buck like the rest of us...in reality, all it takes for the standard associate salary to be raised is for one firm to take the initiative...law firms are not all that different from businesses...if one raises their starting salary, others will follow...domino effect

Posted by: anon at June 19, 2007 09:32 PM

PL, this is entirely irrelevant but your writing is awesome and I can't help wondering what your literary influences are...I know you mentioned two(which I wont name here because of your rule regarding other authors and anything media related) and that you had a list planned for the future, but can you name any other works that have inspired or impacted you? I'd appreciate it

PL: Read PJ O'Rourke's "Parliament of Whores" and Hunter Thompson's "Fear and Loathing on the Campaign Trail '72." Hitchens' columns in Salon are great and so are those of a retired columnist named John Tierney who wrote most notably for the Times. Here's a strange one - Ambrose Bierce's "Devil's Dictionary." Oh, and Mencken - evrything the man wrote was dead on, except for his shitty anti-Semitic drivel. Matt Taibbi's regular column in Rolling Stone is terrific and I recommend McCullough's "1776" (though that hardly needs any more pimping). I'm trying to get through Isaacson's "Ben Franklin" but not getting far. O'Rourke's "Modern Manners" is hysterical. Oh, here's an obscure one - some guy wrote a book called "El Sid, St. Vicious," about Sid Vicious a few years back. It was really riveting. Bob Woodward's "Wired" will leaving you feeling colder and more creeped out than any book you've ever read. It's a clinical view of a human disintegration. Amazing. Chuck Klosterman's "Sex, Drugs and Cocoa Puffs" is a must read, along with his column in Esquire. Read anything by Tom Wolfe. You can't go wrong. He draws a picture better than any writer. Except maybe McCarthy, whose latest book, "The Road," Donika and DrunkRex say is one of the best books they've ever read. I have no reason to doubt either of them.

Posted by: brian at June 19, 2007 09:52 PM

The internet is great because you can tell someone "Dude, your writing fucking rules" when your on your 8th beer and starting to feel emotional.

Posted by: alex at June 20, 2007 01:51 AM

Why would you stop writing about law? I can understand that you would want to expand your appeal to those not interested in law--and that is understandable, but stop writing about it altogether? I assume many of your readers are specifically interested in your description of the legal world; I know I am.

PL: My statement about stopping was worded too broadly. My apologies for that. I am going to expand this site in the future and not focus dryly on the business of law, as this little missive did.

Posted by: Noah at June 20, 2007 02:06 PM

As a summer associate at a market-paying firm, I definitely think the extra $30k a year is reasonable. Especially if I have to put up with an asshole boss who blames me for basically being new and not knowing ________ law. If I'm not smart enough to do a good job, isn't that the fault of the person who hired me to do it? Ironically, that's the same ______ who yelled at me. Yes, an extra $30k a year would definitely make ___ more bearable.

Also, our IT department has blocked your website on our computers. I think that's worth at least another $2000 a year.

PL Reply: I edited this to protect the identity of the commenter. If the commenter wishes it to be printed in full, he can advise me so.

I think I've been blocked on many corporate and law firm computers for some time. But if it's a recent thing deriving from the 160K article, I'd find that pretty amusing.

My advice? Smile when you're being yelled at. Always smile.

Posted by: Twickenhammer at June 23, 2007 04:02 PM

I know that PL has already responded, but I'd like to emphasize "do not stop writing about law." While I enjoy reading your diatribes about drugs, college, debauchery, and the rest, you're most coherent, entertaining writing has consistently been about your career as a lawyer. It has been a fantastic window into a world of which I am not a part and which many people, mostly due to monetary reasons, strongly desire. I've told a lot of people about your site, and each time I tell them that you write fantastic stories about the field of law - somehow everything else kind of takes a back seat.

Posted by: Jeff at July 8, 2007 12:57 AM

As a 5th year attorney/associate, insight like this (in your article) as to what my partners are thinking is absolutely crucial. Add me to the "Don't Stop legal topics" caucus.

As a person who enjoys a good story, it appears even your non-attorney fans agree that your legal perspective adds a certain nuance to your writing that seems to keep everyone happy.

As an aside, and not that you're interested, but. . . in a 13 attorney "boutique" firm in a south Florida small resort town, they are using the Rule of 3 on me, and on top of that, my commission takes are below 20%. I could triple my income in Miami, Tampa or Orlando, but where I'm at now, I don't have a billable hour req. and I rarely work over 40 a week. Which is unheard of. Whatever.

Thanks again.

Posted by: Rainemaker at July 26, 2007 01:42 AM

As a 10 year in-house counsel, I fear the large firm 'universe' may be in for a long-term shock if this trend continues. Those who decide what firms are to be hired for certain work have started to move more and more projects to firms outside of the major metropolitan areas which are typically boutiques.

Intelligent attorneys actually exist in places like Memphis, Columbus (OH), and Tampa. Shocking!

They have moved more doc review projects overseas. They have created internal rules forbidding the use of associates with less than 4 or so years of experience.

Driving the price of a first year ever skyward (and passing that onto the consumer) + the added pressures brought upon in-house counsel by their CFOs to cut legal costs and do more internally + the factors I listed above = a scenario where something must give.

Just .02 from a consumer's perspective.

PL: First, excellent fake name. Hyman Roth is a fantastic reference.

Second, I agree with everything in your analysis. An analyst friend of mine recently reminded me, regarding oil, that the surest sign a bubble was about to explode was a sudden largely unexplainable uptick in price (oil jumping from $100 to $120 over the past several weeks). Viewed over the long term, the legal market seems to have done the same thing in regard to fees and wages when you compare the past nine years to the preceding decades. I guess you could say wages were previously suppressed, but I'm not sure that's a great argument.

Posted by: HymanRoth at May 1, 2008 09:22 AM

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