Big Law’s Associate Pay Scale Stagnated as Partner Profit Soared

Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at historical Big Law associate salary data and ask what makes a compensation system seem fair for young lawyers and partners.

Every time the Big Law associate pay scale gets bumped up, the question gets asked: Are these fresh-faced lawyers overpaid?

After raises in 2016 and 2018, first-year lawyers at most of the nation’s largest, most prestigious firms now make $190,000 a year. Then they get bonuses worth around $15,000.

Yes, it’s a lot of money. So much that prominent general counsels have been known to disparage the whole system. Bank of America’s general counsel said he wouldn’t pay any higher billing rates for young lawyers resulting from the 2016 salary jump for first-year associates to $180,000 from $160,000.

But it turns out those raises were far from out-of-line when compared to inflation and, even less so, when compared to the growth in profits and partner salaries for many firms.

When adjusted for inflation, the Big Law salary scale has hardly grown since the 2008-09 recession and has yet to reach pre-recession heights, according to data compiled by Goodwin Procter associate Joshua Holt, who runs the personal finance website biglawinvestor.com.

First-year associates paid on the Cravath scale in 2007, so-called because the firm traditionally sets the benchmark on pay, earned $160,000 in salary and a $45,000 bonus, according to Above The Law. Associates as of October last year (when the most recent compensation data was available) would need to be making slightly more than $250,000 to keep pace with the cost of 12 years of inflation. In 2019, they earned $205,000 in salary and bonus–nearly 20% less.

That starting point may be out of line. The $45,000 bonus handed out that year could be considered market exuberance that, as evidenced by the ensuing recession, never should have happened. So consider 2010 as a base year. Above The Law reported first-year associates that year made $160,000 in salary and $7,500 in bonuses, meaning first-year lawyers’ income increased a mere 4.1% through last year when taking inflation into account.

Wage growth for Big Law’s young lawyers has looked much like that of the broader U.S. economy: largely stagnant except for some significant growth in the past few years.

To be sure, associates advancing their careers within the Cravath scale earned annual pay raises that stayed well ahead of inflation. They averaged a more than 8% pay raise between Year 1 and Year 8 from 2006 to 2019. But without a boost in the underlying starting salaries between 2007 and 2016, inflation ate a hole in the value of a Big Law career for each successive year of hires.

Meanwhile, the slow growth in associate pay after the recession looks nothing like the increase in profits for some of the wealthiest firms and their partners.

Consider Cravath itself, which reported profits per partner in 2007 of $3.3 million. Add inflation to that figure, and it is worth about $4 million in 2018 dollars (when the most recent profit figures were available). Real-life Cravath partners in 2018 earned, on average, $4.6 million in 2018, outpacing 11 years of inflation growth by 15%. Paul Weiss’ profit growth in that time outpaced inflation by 59%. The figure is 67% at Kirkland & Ellis.

It is worth noting this isn’t unique to Big Law. Business owners typically benefit from profit increases, and CEO compensation in the U.S. has vastly outgrown employee wages. CEOs of the 350 largest publicly traded companies made 278 times their average employees’ salary in 2018, up from 58 times in 1989, according to the Economic Policy Institute.

Michelle Fivel, a partner at Major Lindsey & Africa who recruits associates for law firms, said the disparate growth in income reflects the value partners bring to their firms compared to first-year associates.

“Those partners bringing in huge books of business and huge clients, those are the ones who are bringing in the profit,” Fivel said. “It’s looking at the value the attorney is bringing to the firm, and most compensation systems will highly value the business generator—the rainmaker.”

Big Law firms have just begun reporting their profit from last year, and by all indications it was another strong year. As profits per partner continue to increase, associates may question the fairness of the current compensation structure. The question partners will have to answer is how much that matters to the ongoing health of the firm.

Worth Your Time

On Inflation: The Artificial Lawyer examined Big Law Investor’s inflation figures and asked whether they were a result of technology eating into the value junior lawyers provide.

On Training: K&L Gates joined the list of law firms that are investing in business training programs for young lawyers, which a Major Lindsey & Africa survey from last year said associates want.

On Law Firm Business Models: The ABA is set to vote next week on a resolution that would encourage innovative approaches to regulating who can own law firms. My colleague Sam Skolnik handicaps what is expected to be a close race.

That’s it for this week. Thanks for reading and please send me your thoughts, critiques, and tips.