Associate lawyer compensation: Have we yet hit the vomit point?

Many years ago, a good friend of mine said that the problem with aging is that we’re mired in history rather than focusing our perspective on today.

Thus, today’s article in The American Lawyer by David Brown may shock those of us who are over the age of 30!

He talks about the “paycheck report,” a survey of “mid-level” associate compensation. Associates’ paychecks exceed $200,000 per year and, in some instances, reach $350,000!

“Not surprisingly, associates in New York are making more than anyone else. At the top of the heap: the lucky few at Wachtell, Lipton, Rosen & Katz. The corporate powerhouse pays its third-years an above-market base rate of $190,000, but the real boost comes at bonus time. Wachtell third-years were paid a median bonus of $165,000 last year-or more than midlevels in some markets make in base pay and bonus combined.”

In their “Pain Index,” the article demonstrates that the partner to associate compensation index travels from a low of 3.55:1 to 13.40:1. In other words, those firms with higher profits per partner will feel the pain of higher associate compensation less than those with a lower profits per partner level.

I suspect, though you can’t get the information from these tables, that the leverage (number of associates employed per equity partner), that the firms with the lower “pain index” will be the firms with the higher partner per associate index. Leverage is a large factor in increased profitability … and quality “help” (staff and associates) is hard to find … and, in today’s legal market, expensive. The real issue is whether your new hire can produce a return on your investment in him/her!

This should be a lesson for the smaller firm as well: Higher more qualified staff and legal talent (associates) before you increase your partner ranks.

Some may caution that lest we bask in our joy for the working class (the associates earning these previously unheard of sums), remember that the average associate still carries huge student loan balances and pays higher living expenses in New York than elsewhere. Also, they work very long hours. Yes, they do work long hours and have high living expenses … but no more so than other folks in other industries. These young people can still, as Brown comments, buy a good dinner at the local delicatessen. Their employers can still earn a profit on their employment efforts.

In an earlier post, I talked about the very high earnings for some lawyers. Here, we’re talking about the high earnings for associates. It is all the same thing. Have we reached the "vomit point" on the scale of lawyers earnings? The only brake on this rolling train will be the clients’ refusal to pay their legal bills. We don’t seem to have reached the "terminal" point on this yet.

Categorized in: Cash Flow - Finances, Management, Marketing