One Percent

Every firm has them. And partners dutifully show up. Mostly for the free lunch. This month we are serving Tex-Mex. One percenters’s loading up on the free food like a Soviet-era pensioner given the keys to the potato warehouse. It can be a gruesome scene.

So what happens at these monthly gatherings of Biglaw’s barons and baronesses? Nothing important. (You want important stuff, you need to crash an Executive Committee meeting. Or for the increasingly common Biglaw dictatorships, you need to bug Chairman Mao’s office.) At least at the scheduled monthly partner meetings. “Special” partner meetings are a different story. You want those to be boring, like calling for a vote on a group of laterals. “Exciting” special meetings, while good for Lat, are not good news for the average partner usually. Stability is one of the biggest draws of a Biglaw partnership. Stability means no shocking announcements, over which you have no control.

Anyway, here is how the typical monthly partner meeting goes….

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I told careful readers six months ago that I would soon be moving to London. I made the move on September 1, and here’s the local news:

Senior partners at major London law firms can’t afford to live!

Well, not quite: But senior partners at many major London law firms can’t afford to live in London itself.

I recently had lunch with — prepare yourself — a senior partner at a major London law firm. When I told him where I was now living, he said that it was nice that my commute would be so short:

“Twenty years ago, the senior partners at most big law firms lived in London. But today, unless you have inherited wealth or bought your home long ago, most senior partners at London firms can’t afford to live anywhere near the City. Partner pay just won’t cover the cost.”

As an expatriate American, this startled me: I’m confident there’s no American city where senior partners at major law firms can’t afford local real estate. But in London, this has the ring of truth to it. From an American’s perspective, everything in London is nauseatingly expensive (or “quite dear,” as the locals so quaintly put it). But the cost of housing goes far beyond “nauseatingly expensive”; it’s eye-poppingly, grab-your-chest-and-drop-to-the-ground, out of sight. It leaves partner pay in the dust. Here’s what I mean . . . .

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The most shocking result of the recent survey on partner compensation conducted by Major, Lindsey & Africa was how much better the average partner does in firms with open compensation systems — almost $350,000 better on average, year in and year out. To me, that is the difference between retiring at 55 or 65. A big deal.

Have some fun. Tell your average law student that the average compensation for Biglaw partners at closed compensation shops (irrespective of equity status and seniority) was only $465,000, and see the reaction. Or pop an associate’s bubble. And realize that with demand for Biglaw services trending down, there is only so much time left before partner compensation generally starts to take a hit. I always knew about the disparity between open and closed firms, and I had heard about it anecdotally (I think Lat mentioned in an article a few years ago a personal friend who saw his comp climb dramatically after lateraling away from a closed comp firm). But I never really appreciated the scale until this survey came out.

I would think that anyone (especially younger partners with growing books) who could get out of such a firm would at least be trying to (ergo the need for a growing book). Even if your numbers are stellar, and your book is growing along with your traditional working collections, it is too easy for a closed comp chieftain to declare that you need to repeat the performance to make sure its sustainable. Whereas in a open system, you have leverage right away, and can convincingly argue to the compensation committee that failing to reward you would risk discouraging other potential achievers. And that you will leave — but one needs to be subtle on that front. Threaten to leave a closed comp place, and if they really like you, they’ll offer to match whatever new offer you get (thereby confirming they have been skimping on you all along)….

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The recent survey on partner compensation conducted by Major, Lindsey & Africa, which I discussed last week, is full of interesting information. First off, I never really knew how many Biglaw partners there are. The answer? Around 75,000, which includes partners from all firms ranked on the Am Law 200, NLJ 350, or Global 100 in the last five years. Throw in another 1,000 or so partners who were Biglaw partners but left to form high-end boutiques — not included in the survey, but I consider them Biglaw partners since they typically work for similar clients — and you still have a pretty small number relative to the number of lawyers in the world. The figure of 75,000 amounts to less than two years’ worth of new U.S. law school graduates.

Very interesting, especially considering the forty-year-or-so age spread between active partners. Seriously, how realistic is it for any one law graduate (irrespective of pedigree) to think they will beat the odds and eventually make partner? So many things need to go right — it is amazing.

Here’s one surprising aspect of the MLA survey….

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Lat had it right last week. There is a big, and growing, partner compensation spread at nearly all Biglaw shops. And as I mentioned in an earlier column, it is not uncommon to make partner and not see a bump in guaranteed pay at all. Factor in the additional expenses Lat references, such as tax and insurance outlays, and the first few years of partnership can be a net loss for some partners. Even if you finance your buy-in. And especially if you were the beneficiary of some big bonuses, for the suicidal hours you had just put in (big profits for your Biglaw firm!) as a counsel or senior associate in order to get elected.

So please don’t assume that every one of the people you see named as new Biglaw partners (usually in a breathless press release, and sometimes even with an ad in the American Lawyer) are signing contracts for their dream “lawyerly lairs” straightaway. If they are, it’s because they have family money or are a two-professional, no-kid type-family. Otherwise, they are headed for some tight times once they realize that they have to pay federal taxes (including Medicare and Social Security), state taxes (often in every state their firm operates), local taxes (for their beautiful new property), and a real accountant who can figure the whole mess out for them.

Most people don’t realize this, and Biglaw is in no rush to pop the fantasy bubble. Better to have associates motivated by dreams of what Lat referred to as “instant riches.” Better to maintain the prestige of the profession by pretending that making partner at a Biglaw firm is a tremendous achievement, regardless of what firm, practice group, or locale. It’s an achievement, sure. Just like getting elected to some political office. But there is a big difference between getting elected to the U.S. Senate and getting elected as deputy tax commissioner somewhere….

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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….

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If the mountain will not come to Muhammad, then Muhammad must go to the mountain. Or Muhammad will just buy the mountain — for $18 million.

Check out our latest Lawyerly Lair. It features a 10,000-square-foot mansion, a 2,500-square-foot guesthouse, 48 acres of land, 13 formal gardens, a one-acre pond (with bridge), a swimming pool and spa….

And its own mountaintop. Did we mention the mountaintop?

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This $10 million house is owned by a lawyer at a top law firm. Which one?

What can we say? We can’t get enough of Washington real estate. And neither can you, judging from the traffic generated by our recent look at some million-dollar homes in the D.C. area. So let’s return to that well.

Our last story was about homes in the $1 million to $3 million range. Let’s class it up a bit and look at Lawyerly Lairs ranging in value from $7 million to $10 million….

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On the Philadelphia Craigslist, there is a job listing for people who enjoy pissing all over the 99% — a part-time job for a most likely unemployed person who nonetheless loves the people in power and hates everybody else. Oh, and applicants better have not protested against the Iraq war, because apparently this employer loves people who never question authority.

See, this is why we still have to pay attention to Super Tuesday despite the fact that the Republicans are down to a robot and a guy who hates women. Republicans always have a puncher’s chance because there are so many people in this country right now who are unemployed and willing to take part-time crap work, who still believe that someday — magically — they will end up on top.

It’s much easier to sing to these American idiots about the dream of prosperity than to tell people the truth: statistically speaking, you’re more likely to be struck by lightning that to go from the mailroom to the boardroom.

But, since I suspect at least 50% of the unemployed people out there don’t understand how the system works, let me post the job. Have fun with your self-loathing….

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This ship be sinking.

* How many one percenters do you think are members of the 11%? According to this poll, Congressional approval ratings have hit an all-time low. Looks like it’s time to occupy Congress. [CNN]

* Wikipedia is planning a site-wide blackout this Wednesday to protest the Stop Online Piracy Act. At least they’re giving some advance notice. If you’ve got papers to write, hurry up and finish. [Businessweek]

* Racial profiling ain’t easy. Sheriff Joe Arpaio still wants to detain people based on the suspicion that they might be here illegally, so he’s appealing Judge Snow’s ruling. [Washington Post]

* The part you won’t see in the inevitable movie starring Robert Pattinson: victims of Italy’s Titanic reenactment will probably be unable to sue for damages in U.S. courts. [Reuters]

* Here’s the umpteenth rehashing of the “are law schools cooking their employment statistics?” argument. Better question: without minimum standards for employment, does it matter? [NPR]

* Jesse Dimmick — the kidnapper who sued his victims for breach of contract — won’t get his day in court. The “most ridiculous lawsuit of 2011″ has been dismissed. [Topeka Capital-Journal]

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