Who's kidding whom on associate salaries?

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Published on 4/30/07

The news has been the talk of the legal world: average first-year associate pay at the mega-firms has exploded to more than $160,000.

Some commentators say this opens up tremendous opportunity for smaller firms with a more “rational” pay structure.

General counsel at company after company declare that they will not pay for such outrageous salaries when it comes to their legal work.

Of course, with the average lawyer in small firm or solo practice making $60,000 a year or less, this seems a tempest in a far-removed teapot.

But the debate over big-firm associate pay is important because of what it says about our profession and our society.

There’s no doubt that high associate pay is here to stay for the mega-firms. With the competition for top law school talent so fierce, and with profits per partner at the 100 largest firms averaging more than $1 million annually, it’s a given that the cost of legal talent is bound to rise.

What starts in New York will quickly move to Chicago and San Francisco. Associate salaries may be high, but if compared to equity partners' revenue, the percentage is actually lower today than it was only a few years ago. If associates are making so much money, partners are too.

What about the corporate clients’ insistence that they won’t pay such high rates for beginners?

The simple fact is that their alternative is to pay for mid-level or senior associates making $500,000 a year and more, and partners making $1 million and much more.

What I think clients are really saying is that they don’t want to pay for the on-the-job education of these beginning associates; but they really have no alternative.

In a recent column I raised the point that there is no such thing as apprenticeship training for U.S. law school graduates. They get their J.D. degrees and move right into practice.

Both law firms and clients have the economic incentive to use these lawyers right away, and, from the law firm’s perspective, it is imperative that they do so. If these young lawyers who have no practical experience aren’t trained on the job, where will future senior associates and partners come from?

A final point to remember is that law firms are not trendsetters. They follow their clients.

If law-firm compensation from first-years to partners is too high, the same can be said many times over for their corporate clients.

CEO pay at large companies used to be 10 to 15 times that of the lowest worker; today, with compensation in the tens of millions of dollars, the gap is astronomical.

Lawyers must sit at the same table with these highly paid executives, and it follows that if they want their advice accepted, they have to be taken seriously.

Years ago my father, who owned his own business, wanted to buy himself a new company car. He wanted a Buick, but one of the senior buyers he sold to told him he should buy a Lincoln Continental. Why? “Because you have to impress people like me that you’re successful enough to buy from.”

So when it comes to high associate salaries, who’s kidding whom?

The high pay is necessary to fund otherwise non-existent apprenticeship education, and it’s part of a self-reinforcing pay structure that clients and their lawyers perpetuate.

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