Friday, January 27, 2006

Law Firm Salary Wars

Associate salaries at big law firms may be on the rise again, according to reports at An article on that website reports that some big West Coast law firms are raising junior associate salaries by around $10,000. This means new law school grads who land these jobs will be making about $135,000 per year. Those poor junior lawyers! Firms that have hiked their associate salaries lately include Wilson Sonsini, O'Melveny & Myers, and Paul, Hastings, Janofksy & Walker. This round of increases was started by Gibson, Dunn & Crutcher. Since these firms have offices throughout the country, you can expect to see increases in other big markets as well.

Whenever big firm salaries go up, two things generally happen. First, associates in the trenches say, "Hooray! Now I make even bigger bucks!" And second, people who do not like big firms say something like, "Those @#%&*# don't deserve that much money. They are leeches on the back of society."

As it turns out, both reactions are wrong.

Why are the gleeful (greedy?) associates wrong? Because any salary increase is not free money. You are going to have to earn it. And for already big salaries, any increase will truly have to be paid for with blood and sweat. The firm is likely to increase your billing rate to offset your added cost--but with a higher billing rate you will have to be an even quicker learner and faster worker, since clients don't just blindly pay higher fees for the same work product. You also likely will have to bill more hours, and work more hours to do so. And when you divide your grand associate salary by the hours worked per year, the pay ain't so grand. (See my previous post about this.) So remember, the reason to work the big firm job is because you love it--or at least because the benefits exceed the costs. Not just because you are making 6 figures.

Why are the firm haters wrong? Because the map is not the terrain. Official salaries only tell part of the story. Firms are reluctant to lower official salaries, of course, because that looks bad. (In economic terms, law firm wages are elastic upward but inelastic downward.) But that does not mean that firms pay all associates at the official rate. In the past 5 years, in fact, a lot of big firms have added "part-time" partnership tracks. Part-time is actually a euphemism for a full time job averaging 40-50 hours per week, instead of 60-80 hours that most big firm associates put in. Associates on the slow track have lower annual billing targets, and in return they get paid less and take longer to make partner (say, 10 years versus 8 years).

In other words, "official" associate salaries only tell part of the story, and salaries on the big law firm market are undergoing a market self-correction. As well they should.

What is particularly interesting about the "part-time" track is that it was created largely at the urging of associates themselves. Many associates like their jobs, but do not like their hours. And they are willing to take less money (although still a good salary)--and in some cases they even forego a shot at partnership--in return for fewer billable hours. To turn again to economics, it's an application of the Laffer Curve--that at some point a person is not willing to work more for higher pay. At some point, the value of free time/quality of life exceeds the additional salary offered, and people say no.

I seriously doubt that we are going to see 50% raises given to law firm associates like we did during the dot com boom. But we are going to see incremental raises like those being implemented right now. The fact that they are incremental, however, does not mean they have little impact. Big firms will match each other dollar for dollar on paper, and as a result more and more people will try to work out other, more flexible deals so that they can have a life on the side.


G said...

Thanks for your link to my blog (Lack of Scienter), and I just wanted to say how much I agree with you and how frustrating it was to hear my colleagues getting all excited about our $10,000 raise. I am one of the many people who would much prefer to take less money for a lower billable hours target -- in fact my firm has this option, which I plan to consider as I move forward. In my opinion, once you get over $80,000 a year or so you are making a very comfortable living -- what's that jump from $125,000 to $135,000 really going to buy you? Is it worth even a couple more hours of your life each week? Not to me.

Gregory W. Bowman said...


Thanks for your comment, and thanks for the 5/10/06 post! Your blog is superb (with great graphics, by the way). I enjoy your posts, and they flash me back to my days back in the "real world," before I retreated to the ivory tower. The one on the car search is a classic.

Anonymous said...

Re: the comment on a bump from 125 and 135...the difference depends on where you live. If you live in an area with a higher cost of living, 125 and 135 is within the "making a difference" range, like 70 to 80 could be in the area where you live...

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