In 2016, perhaps the biggest story of the year for the legal industry was the associate salary raises — from $160,000 to $180,000 for the most junior associates — that was adopted by many of the largest U.S. law firms.
Now, as consultants and banks roll out their financial forecasts for law firms in 2017, it’s a topic that’s getting a fair amount of air time. The questions persist: How have these raises affected the bottom line for law firms, and will they transfer to the client?
Aric Press recently wrote for Big Law Business that, according to a running tally over at Above the Law, 116 law firms, 100 of which are among the largest 200 in the United States or largest 100 in the world, gave associate salary raises of roughly $20,000 per head.
“This will cost the average Am Law 100 firm, with headcount at 930 lawyers, about $11.6 million a year, or $57,300 per equity partner.”
Was it worth it?
For a global law firm with more than $1 billion in revenue, $11.6 million might seem like a drop in the bucket. But for smaller firms in more regional markets, the financial analysis might not check out.
As Mark Stewart, chair of Ballard Spahr, the 500-lawyer firm with $337.5 million in revenue once told us : “We could never explain (the raises) to the clients for whom we are getting work and the type of work we are getting.”
While Ballard Spahr didn’t match the raise to $180K, there may be some firms out there that did, despite warnings signs not to.
If you do the back of the envelope math, you can drill into the numbers that Press used to obtain his $11.6 million figure to determine any firm’s “average” costs.
Press told us an average AmLaw 100 firm has 930 lawyers, of which 203 are equity partners, 145 are non-equity partners and the remaining 582 lawyers are associates. Assuming the raises cost $20,000 per associate, he reached his $11.6 million gross number. If you divide that by the number of equity partners, you can see how much it cost each equity partner on average: $57,300 — that is, assuming they pay for it and not the client.
Depending on the associate-to-equity partner ratio at the firm, those numbers will change a bit but Press has provided at least one way to think about the impact of this associate salary raise on the average Big Law firm.
Let us know if you think the raises were worth it at your firm (client complaints welcome): Biglawbusiness@bna.com .