Biglaw

What The Associate Compensation Bonanza Is Costing Biglaw

Associates are getting expensive.

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Associates have been — rightfully — cheering the deluge of money coming their way this year. Because the Biglaw lateral market is super hot right now (we are talking six-figure signing bonuses), firms have had to respond — with money — to keep their associates. So we’ve seen special bonuses and raises, and even retention bonuses on top of all that other money — if you’re lucky enough to work in a super-valuable practice area.

But what has all this done to Biglaw’s bottom line?

According to the latest Peer Monitor Index report by Thomson Reuters, direct expenses are up 7.2 percent, driven largely by these compensation increases. As the report notes, “The increases in salary scale have never been as large or as frequent as they have in 2021.” And that might just be a little nerve-racking since associate compensation is “a potential profit sinkhole for firms, which spend hundreds of thousands of dollars per associate every year, while many of these associates operate at an effective loss for the year in terms of their collections.”

And all this spending hasn’t stemmed the flow of associates — firms experienced a 14 percent turnover in their lawyer ranks.

But there were lots of bright spots in the report for Biglaw. In the third quarter, compared with the same period a year ago, demand for legal services was up 4.4 percent; productivity was up 1.9 percent; and billing rates increased 3.7 percent. I’m sure Biglaw will be just fine in the long term, but it sure is interesting to find out just how much associate compensation is costing firms.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).

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