Biglaw, Cheapness, Money, Partner Profits, Skaddenfreude

Sally Struthers Asks: ‘What About the Children Partners?’

Sally Struthers Above the Law.jpgWe’ve been covering the latest round of law firm associate pay raises largely from the perspective of the associates. But what about the people who have to pay for all this largesse: the partners?
Several recent articles offer a partners’-eye-view of the compensation arms race. We’ve collected the links below.
Despite the cheery announcement memos they’ve been sending out, partners aren’t happy about having to cough up more dough. From New York magazine:

[I]t’s estimated that at a big firm like Simpson (which has about 500 associates and 155 partners), average per-partner profits run about $2.4 million a year. To pay for this raise, each partner will take an approximate personal hit of $40,000 to $70,000 a year. “It’s horrible,” said one partner at a big firm.

Horrible indeed! For that kind of dough, you could get ten bespoke suits, a decent luxury car, or a house in the Hamptons for a month.
But before you start shedding tears for your benefactors, dear associates, consider this information, from the National Law Journal:

[C]omparisons from 1996 to 2005 indicate that as partners have made more, first-year associate salaries have not kept pace.

At law firms with 501 attorneys or more, median associate salaries were $125,000 in 2005. At the same time, profits per partner at the nation’s 100 highest-grossing law firms in 2005 averaged $1.07 million.

Consequently, associates were making 11.7 percent of the amount partners pulled in for 2005, the smallest percentage in the last 10 years.

By contrast, associate salaries in 1996 at the nation’s largest firms equaled $70,000, or 14.3 percent of the profits per partner, which that same year averaged $489,753 among the Am Law 100, the 100 highest-grossing firms.

As we wrote in these pages back in August (which feels so far away right now, given the snow and freezing temperatures):

“Associates of the world, unite! You have nothing to lose but your Blackberries.”

But revolution may not be necessary. Things may get better naturally on their own. From the NLJ piece:

William Johnston, a vice president of Hildebrandt International, a law firm consultancy, expects the gap between associate salaries and profits per partner to narrow in the next few years.

“Overall profitability will start to plateau,” he said. In addition, law firms will continue to feel the pinch for qualified law school graduates from their own competitors and from hedge funds and investment banks offering attractive alternatives, he said.

Firms must also compete with the opportunities offered by insider trading. If you do it right (and don’t get caught), you can earn profits that make $160K look like a pittance.
The Partner Tax [Intelligencer / New York Magazine]
Starting Pay at Top Firms Falls Farther Behind Partners’ [National Law Journal]
In the Law-Firm Pay Race, Who’s Really Ahead? [DealBook / NYT]

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