Biglaw, Money, Partner Issues

You Won't Get The Money!

What are the odds of you actually making $3 million as a partner at a Biglaw firm? Biglaw partner turned in-house lawyer Mark Herrmann runs the numbers.

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The headlines here at Above the Law are sometimes slightly misleading, don’t you think?

The “going rate” for new associates is $160,000 per year!

Firms at the top of the heap are raking in $3,000,000 per partner per year!

Go into law, live fast, and retire young!

I think the more junior writers at Above the Law have done a fairly good (and relentless) job of explaining that it’s probably not a good idea to take on a mountain of debt to attend a low-tier law school. You almost surely won’t land a job paying $160K per year, and you may not land a legal job at all. That won’t be comfortable.

I’d like to offer the longer view. What are the odds of you actually making $3 million as a partner at a Biglaw firm?

A word of background may be in order here. I played this game for an entire career. I did some things: I attended a top law school (Michigan), graduated in the top 10 percent of my class, and clerked for a Ninth Circuit judge. I did not do other things: I chose not to work in a big firm or on the East Coast in my first job out of the clerkship. Instead, I chose to work at a 20-lawyer firm in San Francisco at slightly less than even the then-“going rate” in San Francisco, both to get some hands-on experience and to work in a smaller, more collegial environment. (I’m happy with that choice.) When I later moved to the Midwest for personal reasons, I ended up at a huge firm in Cleveland, where I remained for 20 years, 17 as a partner. (I’m happy with that choice.) And I then moved in-house. (I’m happy with that choice.) (I guess I’m just a happy guy.)

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What can I tell you from my long-in-the-tooth perspective? Here’s the path to making $3 million per year in 2015 dollars:

Get admitted to law school.

(No problem.)

Not that one! A good one.

(Still no problem.)

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Do great!

(What’s great? In my day, it was “top 10 percent at a top 10 school.” As the big firms grew, it became something more like “top 25 percent at a top 14 school.” Or top 10 percent at a slightly less-respected school. Or number one in your class at Joe’s School of Law in Hoboken. But do great.)

Here’s an arithmetic challenge for you: There are roughly 200 law schools in the United States. Let’s say that 20 of those are in the top 14 in the country (because lawyers aren’t very good at arithmetic). What percentage of students can fit in the classes of the top 10 percent of the law schools in the country?

If your answer is something other than 10 percent, try again.

Okay — top 10 percent of law schools; top 25 percent of class; nothing to it.

Take a job in Biglaw! Earn $160K a year!

From what I see on the web, something like 15 percent of law school graduates will end up with jobs in Biglaw. As I said, nothing to it.

But that’s where my fellow writers here at Above the Law peter out. They’re such pikers! They don’t think about actually grabbing the golden ring of $3 million per year, which requires not just landing a job in Biglaw, but running the partnership gantlet and beyond.

So let’s keep thinking:

You had to land a job not just at a Biglaw firm (of which there are perhaps a hundred or two), but at one of the most profitable firms (of which there are only a handful). There’s no golden ring of $3 million at a firm that takes in “only” $800,000 per year in profits per partner.

But you can persevere.

Make partner at your firm!

What are the odds on that? 1 in 10 at some places? 1 in 30 at others?

No problem! You’re a star! You’ll do it!

You’ll get a note from the managing partner: “Congratulations on being selected for the partnership! You’ll now be required to contribute equity (or the income partner’s equivalent) to the firm, so that our partnership can pay its bills. We’ve attached the necessary documents for you to obtain a personal loan from our local bank, which you’ll almost surely need to take the financial hit that you’ll suffer from having been admitted into the partnership. Don’t worry; this deal will make sense over time. Again, congratulations!”

In the legal world of the last 25 years or so, the word “partnership” of course no longer means “partnership.” Rather, “partnership” now means “income” or “non-equity” partner, working for a fixed amount of money every year. I’m looking around, but I don’t see any $3 million per year here.

Different firms handle income partnerships differently. Some make you an income partner for a period of time — maybe three to five years — after which there’s theoretically another “up or out” decision: Either you graduate to equity partner or you leave the firm. Other places simply leave you as an income partner indefinitely. If you do something great — like bring in one of the firm’s top clients — you’ll be invited into the equity ranks. If you don’t, you’ll remain an income partner forever.

Many, many partners at law firms — think of the gantlet they’ve run! — never achieve equity partner status. They spend their entire professional careers as income partners.

But not you. You’re a star! You’ll move up the ladder!

Make equity partner!

Unfortunately, there are a bunch of other equity partners at your firm. In your $3M PPP firm, the guy who really counts — the most highly compensated partner — is making, say, $13M per year. That’s $10M above the average. To make room for that guy’s pay, the firm must find $10 million somewhere: Five other equity partners are taking home $1M per year to save the $10M needed to give the heavy-hitter his due.

And the heavy-hitter isn’t alone. There are a couple of other guys taking in $11M per year, and a few more at $8M. Once you do the arithmetic, it turns out that roughly 70 percent of “equity partners” are making less than the firm average to pay the most highly compensated guys at the top. (This recent article works through a hypothetical where 80 percent of equity partners must make less than average to compensate the rainmakers.)

So 70 percent of equity partners are below the $3M PPP average for which you’re striving.

Think about that for a minute: You’ve run the entire gantlet of getting into a good law school, shooting the lights out while you were there, landing a Biglaw job, besting all your Biglaw peers (some of whom were actually pretty good lawyers), becoming an income partner, and bringing in enough clients to move into the equity ranks. You’ve made it, by God! And you still have only a 3 in 10 chance of pocketing your $3M per year.

Maybe you should start practicing your free throws instead, on the chance that you’ll soon be LeBron.

Please don’t read this column incorrectly: I’ve enjoyed my career. Small firm; big firm; in-house; they’ve all been a blast in their own ways.

And, other than what I said at the beginning of this column, I’m not saying a word about my own personal financial situation. (I’ve written before about how I developed a practice at my Biglaw firm. At that firm, we deemed confidential (even within the partnership ranks) one’s status as income or equity partner or level of compensation. I never discussed those topics with my partners, and I’m not going to violate that confidence here. I’ll say only that (1) I never affirmatively chose to take a job simply because the job offered me the most money; I was always thinking about other things, and (2) I stumbled into enough dough along the way to keep my family fed and put my kids through college. I’m not complaining; I’m not gloating; and I’m not saying that I was, or was not, an equity partner — or an “above-firm-average-PPP equity partner” — at my firm. Maybe yes, maybe no; only the IRS knows for sure.)

I’m also not saying that you shouldn’t go to law school (although I wouldn’t advise my own kids to go to a law school that offered no job prospects even if you were near the top of your class). If you want to be a lawyer, and if you get into a school that gives you a fair shot at actually being a lawyer after you graduate, then go to law school.

Finally, I’m certainly not saying that it takes $3 million per year to live comfortably. An income partner at a moderately profitable Biglaw firm can make maybe $500K (give or take a couple hundred grand) annually, and that puts you way up there among income-earners in the United States. Equity partners will do better still, so you’re talking about a ton of dough.

But you’re not talking about the $3 million per year that grabs the headlines. I’ve seen that lightning strike a handful of folks, but a very small handful.

If $3 million per year is your objective, go back to the free throw line.

Mark Herrmann is the Chief Counsel – Litigation and Global Chief Compliance Officer at Aon, the world’s leading provider of risk management services, insurance and reinsurance brokerage, and human capital and management consulting. He is the author of The Curmudgeon’s Guide to Practicing Law and Inside Straight: Advice About Lawyering, In-House And Out, That Only The Internet Could Provide (affiliate links). You can reach him by email at inhouse@abovethelaw.com.

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