Biglaw, Money, Partner Issues, Partner Profits

New Data on Law Firm Partner Compensation

Is Biglaw all about the benjamins?

Is being a partner that different from being an associate? Contrary to popular belief, becoming a law firm partner is not a path to instant riches. In the early years, your compensation might not be that much higher than it was when you were an associate or counsel. Your taxes might go up, you might have to pay for your own health insurance and other benefits, and you might have to buy into the partnership. Sure, you might be able to borrow the capital contribution from a bank — but remember, you’re liable on that loan, and the bank might pursue you if it doesn’t get repaid.

Our partner readers sometimes complain about the stereotype that they’re all fat cats. As one of them recently wrote, “[Please don’t write] about being admitted to partnership and instantly becoming rich…. At virtually every firm, you become a partner and then start to hope that, over the course of a career, your income will increase to ‘average partner income’ and your hours will decrease to ‘average partner hours.’ Rainmakers reach that goal quickly, but many partners — perhaps a majority in most firms — spend a lifetime waiting for, and never reaching, those goals.”

Of course, that’s the subjective experience of one reader. What does the big picture show? There’s a new report out about partner pay that contains lots of interesting information….

A survey conducted by Major, Lindsey & Africa, the prominent legal search firm, and ALM Legal Intelligence, part of American Lawyer Media, drew responses from more than 2,000 partners at Am Law 200, NLJ 350, and American Lawyer Global 100 firms. Here are some top-line findings, summarized over at Am Law Daily:

[Survey respondents] saw their annual compensation rise, on average, 6.4 percent to $681,000 over the past two years. The jump was apparently driven, at least in part, by an uptick in the average rate those partners are billing, from $555 per hour in 2010 to $585 today.

First, even if partnership might not be a path to instant riches, earning an average of almost $700K is nothing to scoff at. The private-equity and hedge-fund readers of our sister site might scoff at anything below seven figures, but to both the average American and the average American lawyer, that’s a very healthy income. It’s well over $380,000 a year, the income cutoff for the one percent.

Second, in terms of billing rates, a partner for under $600? Sounds like a bargain! Some associates get billed out for more than that amount.

On average, equity partners are better compensated than their non-equity counterparts, male partners make more than their female colleagues, corporate partners earn more than litigators, and partners in open compensation systems are paid better than those in closed compensation systems.

If you’re surprised by any of those findings, you’re not paying enough attention. The last conclusion, regarding open compensation systems versus black box compensation systems, provides support for the argument that black box comp systems, rather than trying to promote teamwork and reduce internal competition, are really just an excuse for underpaying people. (That reasoning could apply to associate compensation, in terms of the old merit versus lockstep debate, as well.)

UPDATE (9/20/2012, 10:30 AM): Of course, there could be other explanations for the pay gap between open-system and closed-system partners. See the comments for additional discussion.

Here’s more from Am Law:

The disparity in pay among partner classes is one of the survey’s most compelling findings. Equity partners, who accounted for 62 percent of respondents, have seen their compensation increase a robust 11 percent, from $811,000 in 2010 to $896,000 this year. Conversely, the average compensation for nonequity partners stayed flat, going from $336,000 in 2010 to $335,000 this year.

That’s an interesting number, and one worth keeping in mind. We often receive inquiries for information about compensation for counsel or non-equity partners, i.e., people who are off the standard associate pay scale but not equity partners. For these folks, being in the $300K ballpark sounds about right (although of course this will vary depending upon city, practice area, how important a given lawyer is to the firm, etc.).

Here are some other highlights from the survey:

  • Overall, 27 percent of respondents are “very satisfied” with their total comp. But this diverges for equity partners versus non-equity partners: 36 percent of equity partners are “very satisfied,” while only 12 percent of non-equity partners are “very satisfied.”
  • According to Jeffrey Lowe of MLA, the author of the survey, this divergence reflects the fact that “rainmakers are demanding more money and are getting it because firms are afraid they’ll leave.” (Dewey know what can happen when rainmakers head for the exits? We do.)
  • Women partners earn an average of $497,000, a 3 percent decrease since 2010, and male partners earn an average of $734,000, an increase of more than 8 percent since 2010. So the gap between partner pay for men and women is growing.
  • Partners in open compensation systems earned an average of $810,000 in total comp, while partners in closed systems earned an average of $465,000. That means open-system partners received about 75 percent more pay than their closed-system counterparts — wow.
  • Transactional partners outearn litigators. According to Am Law, “[t]hough litigators clocked an average of 1,792 hours, compared to 1,518 for corporate partners, their average compensation stands at $634,000 — $213,000 less than the average paid to corporate partners. And that gap has grown substantially over the past two years. In 2010, litigators ($679,000) averaged just $80,000 less in average annual compensation than their corporate counterparts ($759,000).” (Maybe that growing gap shouldn’t surprise; when both the broader economy and the law firm economy improve, transactional lawyers often benefit more than litigators.)
  • As for geographical differences in compensation, the WSJ Law Blog has a handy chart showing how partner pay varies by city. The two top markets are Silicon Valley, where total comp averages around $1.2 million, and New York, where it comes in at just over $1 million.

So those are the key findings. You can access the full report on the MLA website.

Let’s close with this interesting tidbit:

Partners of all classes and genders were united on one front: They all think they should be making more money. Fifty-eight percent of all partners said they should be better paid, and among that group, an overwhelming majority wants something more than a token raise. Ninety percent of the survey’s respondents the partners who believe they should be earning more thought that their compensation should be increased by more than 10 percent, while 1 percent thought their pay should be doubled.

As we wondered at the outset of this story, maybe partners aren’t that different from associates after all. They too feel underappreciated and underpaid.

UPDATE (9/20/2012, 10:30 AM): There appears to be a copy editing error in that last paragraph quoted from Am Law. We’ve edited it for accuracy. For additional detail on this question about satisfaction with pay, see page 28 of the original report on the MLA website.

Report Shows Pay Gaps Widening Among Partners [Am Law Daily]
Partner Compensation Survey: 2012 [Major Lindsey & Africa (PDF)]
Partner Pay Is Way Up in Atlanta, Seattle (But New Yorkers Still Make More) [WSJ Law Blog]

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