Are biglaw associates wildly underpaid? Forum

[OneMoreLawHopeful]

The whole "overhead" argument is bullshit because (1) in the ATL article the guy admits he has no data to base the $300k on, and (2) the overhead rate is VERY different between firms.

Fortunately, Am Law actually collects financial data, and we can see that any answer to the question "Are biglaw associates wildly underpaid?" will depend heavily on the firm.

The pertinent chart can be found here: http://www.americanlawyer.com/id=1202652364056

You want to select the "value per lawyer" tab. The formula for the data points on this chart is:
(Average compensation per partner X Number of partners)/Total number of lawyers

So, this will tell you how much profit the "average" lawyer at the firm makes for the firm, and it varies wildly (Note: this is compensation paid to partners, so overhead is controlled for and it's a better overall data set to look at). At S&C, the "average" lawyer is bringing in $785,000 a year in profit for partners. But, at K&L Gates, the "average" lawyer is bringing in $225,000 a year in partner profits.

While we can argue about the paycheck that first years should receive, it's probably a safe bet to say that the "average" associate at S&C is being underpaid (because even 7th years being paid $270k are still bringing home less than half of what the average associate is worth to the partnership), while market-making associates at K&L Gates are probably being overpaid.

If you're too lazy to click on all 100 data points, you can get a good idea about which associates are probably under/overpaid by switching to the "Profit Margin" tab. There's a clear trend line for firms that goes something like Cahill-Wachtell-Quinn-Gibson-Kirkland where the firms are all wildly profitable given their total revenue, and then there's a different trend line that goes something like Squire Sanders - K&L Gates - Sidley - Hogan where the firms are comparatively unprofitable given their total revenue. It's probably a safe bet that the first group is underpaid while the second is overpaid (though this is weaker than relying on value-per-lawyer because it doesn't take into account the total number of lawyers at the firm, introducing potential calculation quirks when trying to determine the value-of-an-associate). All of the other firms fall somewhere between these trend lines.

[sinfiery]

Based on that analysis, if you pay the S&C average lawyer 785k, partners make $0 each right? Or do partners get a base salary + the PPP? Doesn't really matter except for determining the calculations at the margins.


Either way, it's not as simple an analysis as how much each attorney makes a partner at the firm via profit because partners take all of the risk and thus deserve an asymmetrical amount of the profit. Question is, is that asymmetrical amount currently too much in favor of partners or not favorable enough to associates?

[OneMoreLawHopeful]

Based on that analysis, if you pay the S&C average lawyer 785k, partners make $0 each right? Or do partners get a base salary + the PPP? Doesn't really matter except for determining the calculations at the margins.


Either way, it's not as simple an analysis as how much each attorney makes a partner at the firm via profit because partners take all of the risk and thus deserve an asymmetrical amount of the profit. Question is, is that asymmetrical amount currently too much in favor of partners or not favorable enough to associates?

The wording is "average partner compensation" so it presumably includes any guaranteed "base salary." However, the $785k is profit, so associate salaries are already taken out. You would have to increase each associate's salary by $785k (rather than to $785k) in order to zero-out the profits.

You raise a good point about partners deserving some premium because they take the risk, and I agree with you on that. However, you should also keep in mind the scope of these firms and how "leveraged" they are in terms of partner-to-associate ratios.

So, sticking with S&C, there's a value-per-lawyer of $785k, but the firm also has 1 partner for every 3.67 associates. If partners were paid equally (which they aren't, but whatever, we need to simplify at some point), then each partner is taking home NOT $785k, but rather $785k x 3.67 = $2.88m.

Even if each associate were now paid $100k more, thus reducing their value to $685k, the hypothetical partner would still take home $685k x 3.67 = $2.51m.

On numbers like that (you could give each associate a raise of $100k/year and the average partner is still taking home over two and a half million) I would argue that the associates are underpaid.

[Nomo]

The whole "overhead" argument is bullshit because (1) in the ATL article the guy admits he has no data to base the $300k on, and (2) the overhead rate is VERY different between firms.

Fortunately, Am Law actually collects financial data, and we can see that any answer to the question "Are biglaw associates wildly underpaid?" will depend heavily on the firm.

The pertinent chart can be found here: http://www.americanlawyer.com/id=1202652364056

You want to select the "value per lawyer" tab. The formula for the data points on this chart is:
(Average compensation per partner X Number of partners)/Total number of lawyers

So, this will tell you how much profit the "average" lawyer at the firm makes for the firm, and it varies wildly (Note: this is compensation paid to partners, so overhead is controlled for and it's a better overall data set to look at). At S&C, the "average" lawyer is bringing in $785,000 a year in profit for partners. But, at K&L Gates, the "average" lawyer is bringing in $225,000 a year in partner profits.

While we can argue about the paycheck that first years should receive, it's probably a safe bet to say that the "average" associate at S&C is being underpaid (because even 7th years being paid $270k are still bringing home less than half of what the average associate is worth to the partnership), while market-making associates at K&L Gates are probably being overpaid.

If you're too lazy to click on all 100 data points, you can get a good idea about which associates are probably under/overpaid by switching to the "Profit Margin" tab. There's a clear trend line for firms that goes something like Cahill-Wachtell-Quinn-Gibson-Kirkland where the firms are all wildly profitable given their total revenue, and then there's a different trend line that goes something like Squire Sanders - K&L Gates - Sidley - Hogan where the firms are comparatively unprofitable given their total revenue. It's probably a safe bet that the first group is underpaid while the second is overpaid (though this is weaker than relying on value-per-lawyer because it doesn't take into account the total number of lawyers at the firm, introducing potential calculation quirks when trying to determine the value-of-an-associate). All of the other firms fall somewhere between these trend lines.

The 7th year associate clearly makes the partnership a lot of money. Non-equity partners might also make the real partnership a lot of money. But the partnership also has something to offer that 7th year associate. First, a stream of clients who pay high enough rates that a 270k salary is possible. Second, a shot at partnership and the real money. A bunch of 7th years can't just join up to start their own firm and have any confidence that they will make more than the 270k they made as associates. A 7th year who doesn't go on to make partnership is probably at their career peak earnings. That's not the sign of someone who is underpaid.

[rayiner]

The pertinent chart can be found here: http://www.americanlawyer.com/id=1202652364056

You want to select the "value per lawyer" tab. The formula for the data points on this chart is:
(Average compensation per partner X Number of partners)/Total number of lawyers

So, this will tell you how much profit the "average" lawyer at the firm makes for the firm, and it varies wildly (Note: this is compensation paid to partners, so overhead is controlled for and it's a better overall data set to look at). At S&C, the "average" lawyer is bringing in $785,000 a year in profit for partners. But, at K&L Gates, the "average" lawyer is bringing in $225,000 a year in partner profits.

You're ignoring a major salient fact: $785k is the average over all lawyers, including senior associates, partners, and counsel. However, because a place like S&C has 50% attrition through the third year, the majority of the associates are first through third years, who are not nearly as profitable. A senior associate who has made it to years 6-7 at S&C, or a counsel or junior partner, will bill much more than the average junior associate, not only because by then the less insane folks have been weeded out, but because when work is slow, it's the juniors that will be idling. They also bill at a much higher rate (say $700+ versus $400+), and realize a larger percentage of their billables.

[Anonymous User]

You're ignoring a major salient fact: $785k is the average over all lawyers, including senior associates, partners, and counsel. However, because a place like S&C has 50% attrition through the third year,.

Attrition is not 50% through 3 years at top NY firms. Are you pulling that out of your ass? It's generally ~33%.

the majority of the associates are first through third years, who are not nearly as profitable.

A firm that does a lot of M&A (like Cravath, Skadden, S&C, etc.) generates much more profit from junior associates. And of course, because attrition is lower than you assert, only about 50% of associates are first through third years (there's a long tail of more senior associates, especially at firms with a longer partner track).

A senior associate who has made it to years 6-7 at S&C, or a counsel or junior partner, will bill much more than the average junior associate, not only because by then the less insane folks have been weeded out, but because when work is slow, it's the juniors that will be idling.

This is also incorrect. Billables are actually fairly flat across class year for associates & counsel for most big NY firms (hint: not all senior associates & counsel are gunning for partner)

They also bill at a much higher rate (say $700+ versus $400+), and realize a larger percentage of their billables.

Congrats, the only accurate statement in your entire post is "senior associates bill out at a higher rate than junior associates." May god have mercy on your soul.

user has been warned for inappropriate use of anon (i.e. don't use anon to insult other people)

[JusticeJackson]

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[OneMoreLawHopeful]

The pertinent chart can be found here: <a class="vglnk" title="Link added by VigLink" rel="nofollow" href="http://www.americanlawyer.com/id=120265 ... </span></a>

You want to select the "value per lawyer" tab. The formula for the data points on this chart is:
(Average compensation per partner X Number of partners)/Total number of lawyers

So, this will tell you how much profit the "average" lawyer at the firm makes for the firm, and it varies wildly (Note: this is compensation paid to partners, so overhead is controlled for and it's a better overall data set to look at). At S&C, the "average" lawyer is bringing in $785,000 a year in profit for partners. But, at K&L Gates, the "average" lawyer is bringing in $225,000 a year in partner profits.

You're ignoring a major salient fact: $785k is the average over all lawyers, including senior associates, partners, and counsel. However, because a place like S&C has 50% attrition through the third year, the majority of the associates are first through third years, who are not nearly as profitable. A senior associate who has made it to years 6-7 at S&C, or a counsel or junior partner, will bill much more than the average junior associate, not only because by then the less insane folks have been weeded out, but because when work is slow, it's the juniors that will be idling. They also bill at a much higher rate (say $700+ versus $400+), and realize a larger percentage of their billables.

I'm not ignoring anything. The question asked is NOT "Are 1st through 3rd year associates wildly underpaid?" The question is "Are biglaw associates wildly underpaid?" Nothing in your reply indicates that the 6-7th years are not getting underpaid (particularly if they are billing at a higher rate).

I understand the data isn't perfect, but you're literally making an argument from ignorance here, you have ZERO data to the contrary. At best what you're saying is reason to doubt some subset of associates (1st through 3rd years) are not underpaid, but no reason at all to doubt that associates more generally are underpaid.

[JCougar]

Depends if you subscribe to the labor theory of value, or a market-based theory of value.

I'm fairly confident there's a lot of people capable of doing the work that would do it for about 50% less if big firms didn't protect client access like a cartel. There's a lot of desperate attorneys out there who have no way of paying off their student loan debt that would literally do anything to pay it off--some of which finished just below Biglaw GPA cutoffs at T25 schools, etc.

But if you look at it through a LTV perspective, associates are productive assets for a firm--just like a copy machine where the firm charges the client for making copies. If the firm wasn't making money on the hours you bill, it wouldn't hire you. Is that profit justified? You could easily say so, as no first-year associate is going to be able to drum up that kind of business where so many clients will pay so much, while getting his or her benefits paid for and getting occasional oversight/training, etc. But a lot of people say you don't get much meaningful feedback anyway.

Anyhow, I don't see associate pay going up any time soon. Biglaw is competing with far more efficient consulting firms and firms like Axiom for business, and it's currently losing. It's hard to imagine a future where associate salaries, at least in the first year, don't go down.

[$$$$$$]

Depends if you subscribe to the labor theory of value, or a market-based theory of value.

I'm fairly confident there's a lot of people capable of doing the work that would do it for about 50% less if big firms didn't protect client access like a cartel. There's a lot of desperate attorneys out there who have no way of paying off their student loan debt that would literally do anything to pay it off--some of which finished just below Biglaw GPA cutoffs at T25 schools, etc.

But if you look at it through a LTV perspective, associates are productive assets for a firm--just like a copy machine where the firm charges the client for making copies. If the firm wasn't making money on the hours you bill, it wouldn't hire you. Is that profit justified? You could easily say so, as no first-year associate is going to be able to drum up that kind of business where so many clients will pay so much, while getting his or her benefits paid for and getting occasional oversight/training, etc. But a lot of people say you don't get much meaningful feedback anyway.

Anyhow, I don't see associate pay going up any time soon. Biglaw is competing with far more efficient consulting firms and firms like Axiom for business, and it's currently losing. It's hard to imagine a future where associate salaries, at least in the first year, don't go down.

I work in consulting and I don't really understand how Biglaw firms and consulting firms complete? They have totally different functions and are often both utilized within the same project. Can't comment on pay, but I highly doubt associate pay is going to go down anytime soon, especially as inflation starts ramping up.

[JCougar]

I work in consulting and I don't really understand how Biglaw firms and consulting firms complete? They have totally different functions and are often both utilized within the same project. Can't comment on pay, but I highly doubt associate pay is going to go down anytime soon, especially as inflation starts ramping up.

There's plenty of consulting firms out there that handle compliance-related issues related to employment, benefits, strategy, etc. resulting from mergers, restructuring, etc. I've heard more than one Biglaw partner complain that they're losing business to consulting firms. These areas don't always overlap, and it's common that both law and consulting firms work on the same project but there is some grey area in between. Biglaw's structure simply makes it inefficient, so clients are going to give what they can to consulting firms.

[09042014]

I work in consulting and I don't really understand how Biglaw firms and consulting firms complete? They have totally different functions and are often both utilized within the same project. Can't comment on pay, but I highly doubt associate pay is going to go down anytime soon, especially as inflation starts ramping up.

There's plenty of consulting firms out there that handle compliance-related issues related to employment, benefits, strategy, etc. resulting from mergers, restructuring, etc. I've heard more than one Biglaw partner complain that they're losing business to consulting firms.

I wonder why the Bar hasn't come down HARD on these guys.

[JCougar]

I work in consulting and I don't really understand how Biglaw firms and consulting firms complete? They have totally different functions and are often both utilized within the same project. Can't comment on pay, but I highly doubt associate pay is going to go down anytime soon, especially as inflation starts ramping up.

There's plenty of consulting firms out there that handle compliance-related issues related to employment, benefits, strategy, etc. resulting from mergers, restructuring, etc. I've heard more than one Biglaw partner complain that they're losing business to consulting firms.

I wonder why the Bar hasn't come down HARD on these guys.

I'm pretty sure you're being sarcastic here, but there is some overlap when it comes to compliance. You don't need to be a licensed attorney to do compliance work or to simply complete projects in a way that won't get you sued.

Litigation is a different matter, but litigation is being choked off by more widespread use of arbitration agreements, waivers, etc.

[09042014]

I work in consulting and I don't really understand how Biglaw firms and consulting firms complete? They have totally different functions and are often both utilized within the same project. Can't comment on pay, but I highly doubt associate pay is going to go down anytime soon, especially as inflation starts ramping up.

There's plenty of consulting firms out there that handle compliance-related issues related to employment, benefits, strategy, etc. resulting from mergers, restructuring, etc. I've heard more than one Biglaw partner complain that they're losing business to consulting firms.

I wonder why the Bar hasn't come down HARD on these guys.

I'm pretty sure you're being sarcastic here, but there is some overlap when it comes to compliance. You don't need to be a licensed attorney to do compliance work or to simply complete projects in a way that won't get you sued.

Litigation is a different matter, but litigation is being choked off by more widespread use of arbitration agreements, waivers, etc.

A lot of what Axiom does goes far beyond compliance.

[lacrossebrother]

@ litigation declining. Jcougar's insane perspective of the state of the legal market is always funny to read.

[JCougar]

A lot of what Axiom does goes far beyond compliance.

Well, Axiom actually employs lawyers.

But I was thinking in terms of business services consulting firms like Deloitte, Accenture, Aon, etc., or more focused firms in each area. They and other firms handle all kinds of restructuring/mergers stuff regarding tax, strategy, benefits, employment, risk management, compensation, etc. Of course, a lot of this was never traditionally done with law firms, but in the areas where the services overlap, from what I have heard from Biglaw partners themselves, clients are starting to prefer consulting firms more.

[lacrossebrother]

@ reading about a m or a that says target was repped by Deloitte.

[JCougar]

@ reading about a m or a that says target was repped by Deloitte.

You obviously cannot read.

[mephistopheles]

@ reading about a m or a that says target was repped by Deloitte.

ah, but pwc and ey are making moss to (re?)enter the legal market, recently in the uk with successful applications for abs status: http://www.lawgazette.co.uk/law/ernst-a ... 68.article

[09042014]

@ litigation declining. Jcougar's insane perspective of the state of the legal market is always funny to read.

Litigation might not be declining, but big law lit is. The days of big general lit departments are "done here."

[JCougar]

http://www.washingtonpost.com/business/ ... story.html

I think this signifies that the basic structure of Biglaw is soon to change, including compensation. I don't think this suggests that associates will not have to deal with crappy hours--nor does it suggest pay would decline all that much. But I do think the "up or out" model will become less competitive. There will be more of a focus on developing expertise instead of jamming the office with first years and finding whatever busywork that is available for them to bill.

[BarbellDreams]

I haven't read the entire thread, but I'd like to set some things straight.

My old firm was VERY transparent with us and showed us a breakdown of where the money goes. You are not underpaid, you're grossly overpaid. Year 3, firms break even. Year 5 is where you start making serious money for the firm. Clueless juniors think "Duh, I get billed out at $200 and I only make like 160K and I bill 2200 hours so damn, I'm getting underpaid, they made way more than $160K off me!" These people A.) don't know math, B.) don't understand how business works and C.) are very ignorant. So, here is how things actually work. Your insurance, training, secretary support, malpractice, supplies, CLEs, etc etc etc etc etc, all that is stuff your firm is paying for. Got a secretary? Guess what, thats a ton of cash the firm wouldn't need if you weren't around. All those things add up. More importantly, do you honestly think your little 2200 @ $200 is what the firm actually MAKES off you? I don't think anyone is so ignorant as to say that with a straight face. I worked on a case for a big international company and after I was done my firm showed me the bill and how it broke down. All I saw was a ton of crossed out lines and a bunch of typed out "Will not cover research" and "Will not cover first year associates". This is a client's market, clients just pay what they want now. Many times they just refuse to pay for ANY work that a first year does, and your firm has to sit there and just deal with it cause that client will have 40 firms lining up at the door to take over for you if you bitch about it. Out of your 2200 hours billed your firm is lucky to pull in 1500 off you. Now, and this is my favorite part, your firm is SUPPOSED to make more money than what they pay you. This is how a business works. What do you want, a firm to give you your nice office, pay for all your stuff, give you experience and training, and then give you all the money you made from clients without making a dime? They need to PROFIT off of you, thats why you are there.

I could write 17 more paragraphs on this, but you get the point. No, you're not underpaid, stop bitching.

[moneybagsphd]

I haven't read the entire thread, but I'd like to set some things straight.

My old firm was VERY transparent with us and showed us a breakdown of where the money goes. You are not underpaid, you're grossly overpaid. Year 3, firms break even. Year 5 is where you start making serious money for the firm. Clueless juniors think "Duh, I get billed out at $200 and I only make like 160K and I bill 2200 hours so damn, I'm getting underpaid, they made way more than $160K off me!" These people A.) don't know math, B.) don't understand how business works and C.) are very ignorant. So, here is how things actually work. Your insurance, training, secretary support, malpractice, supplies, CLEs, etc etc etc etc etc, all that is stuff your firm is paying for. Got a secretary? Guess what, thats a ton of cash the firm wouldn't need if you weren't around. All those things add up. More importantly, do you honestly think your little 2200 @ $200 is what the firm actually MAKES off you? I don't think anyone is so ignorant as to say that with a straight face. I worked on a case for a big international company and after I was done my firm showed me the bill and how it broke down. All I saw was a ton of crossed out lines and a bunch of typed out "Will not cover research" and "Will not cover first year associates". This is a client's market, clients just pay what they want now. Many times they just refuse to pay for ANY work that a first year does, and your firm has to sit there and just deal with it cause that client will have 40 firms lining up at the door to take over for you if you bitch about it. Out of your 2200 hours billed your firm is lucky to pull in 1500 off you. Now, and this is my favorite part, your firm is SUPPOSED to make more money than what they pay you. This is how a business works. What do you want, a firm to give you your nice office, pay for all your stuff, give you experience and training, and then give you all the money you made from clients without making a dime? They need to PROFIT off of you, thats why you are there.

I could write 17 more paragraphs on this, but you get the point. No, you're not underpaid, stop bitching.

LJL at this whole company-kool-aid-drinking post.

[mephistopheles]

serious, whytf are secretaries still a thing? a huge money sink for staffers who can't do much more than handle appointment books and answer phones after 3 rings

[sublime]

..