Big Law associates are making more money than ever, but the rate of their compensation growth lags far behind the surge in partners’ profits.
In a bid to attract and retain overworked associates, Big Law firms recently increased their base salaries for lawyers. First-year associates are now making $217,000 including bonuses, up 30% from 2010.
But partners, who share ownership of law firms, have seen their profits skyrocket in recent years.
In 2020, Wachtell, Lipton, Rosen & Katz made $7.5 million in profits per equity partner (PPEP), more than any other firm, according to the American Lawyer. Davis Polk & Wardwell came in second at $6.35 million in PPEP — a 40.7% spike from the year before.
Insider analyzed associate compensation, which includes base salaries plus bonuses, and profits per equity partner from 2010 to 2020 at each year’s Am Law 50 firms. While average associate compensation grew 44% across all levels over the decade, average partner profits at the top 50 firms ballooned by 76%.
Growth rates were calculated using historical associate pay data compiled by Biglaw Investor, which provides financial advice for young lawyers. Equity partner profits came from the American Lawyer.
While partners have always taken home far more than associates, their share has increased in recent years.
Top Big Law firms tend to match — or one-up — salary raises made by other firms because they’re often competing for the same pool of lawyers.
In 2010, a typical first-year associate in Big Law made $160,000 in base salary and $7,500 in bonuses. An eighth-year made $280,000 and $35,000 in salary and bonuses.
In 2020, base salaries and bonuses were $190,000 and $22,500; and $340,000 and $140,000 for first- and eighth-year associates, respectively. That represents a 27% pay increase for first-years and 52% increase for eighth-years from 2010.
By contrast, partners at the Am Law 10, which includes Kirkland & Ellis, Latham & Watkins, and Cravath, Swaine & Moore, earned nearly 85% in 2020 more than they did in 2010.
Elite US law firms have posted record revenues in recent years, but the gains are largely going to the top of the market. Mid-tier firms with lower revenues are unable to match the Big Law associate salary scale. It’s a story of "the haves and have-nots," according to Gloria Sandrino, a recruiter at Lateral Link.
Industry experts say the pay and profit increases are largely due to certain booming practice areas: corporate, M&A, private equity, and capital markets.
"When you step out of that world, it’s actually not a high-profit business," said Tom Sharbaugh, a Penn State Law professor and former managing partner of operations at Morgan Lewis & Bockius.
The picture would look different if "New York-centric" firms with profit-driving corporate practices were separated from national and global firms that spread their work across other practice areas, according to Sharbaugh.
Yoonji Han July 20, 2021 at 05:15AM