When your average baseball fan goes to a ballgame these days, invariably he grumbles about the expense — $50 tickets, $15 beers, $9 hot dogs, and so forth. “It’s those greedy players,” he complains to the guy next to him. “They make millions of dollars, so the club has to charge high prices for everything. They should be grateful just to have a job in this economy.”
In reality, of course, the price of game tickets is completely unrelated to player salaries, which are tied to overall industry revenue. If you’re in doubt about this, ask yourself: When teams sell off players and lower their payrolls, how come tickets prices don’t drop as well? As for concessions, invariably these are run by separate companies and their prices are independent of what’s happening on the field. But the team owners are more than happy to encourage this faulty reasoning, because it gives them PR cover whenever they lock out players or conspire to keep salaries low — the average fan blames labour, not ownership.
In the same vein, law firms have been enjoying the fruits of a longstanding confusion in the legal sector: the one that links billable hour targets to associate salaries. The reasoning, such as it is, goes something like this: “Sure, firms make associates work long hours and meet hourly targets in the thousands every year. But look at the fat salaries the associates take home! Considering how unskilled they are, those associates should be grateful. If they want to work fewer hours and get more ‘work-life balance,’ they should accept a lower salary. If not, they should put their heads down and keep working.”
I’ve heard this line of argument, in one form or another, for years. The top-paying firms use it to justify back-breaking billable-hour demands for junior lawyers; the less competitive firms use it to justify paying less than the going rate. Associates themselves have long since internalized the argument — it’s commonplace to hear young lawyers say, “I’d gladly take a lower salary if it meant I didn’t need to work evenings and weekends all the time.” As an industry, we have created in our minds a causal relationship between associate hours and associate salaries.
I don’t believe that relationship exists. Law firms set their associate salaries before a single lawyer bills a single hour, and they set their billable targets according to how much work they think their associates can endure before breaking. These are two independent variables — but we link them together causally, again and again, because it fits the nasty little morality play our profession loves to perform about how “entitled” young lawyers are and how little they actually deserve (not even minimum wage, according to some).
The salary a firm sets for its associates is largely based on how badly the firm wants to avoid being labelled as a “cheapskate” or an also-ran, compared to what the highest-paying firms in their markets are shelling out. Those top firms, in turn, set their salaries partly because they want to be maximally attractive to new recruits, but mostly, I suspect, because it lets them put the screws to their inferior competitors. How often have we read articles about how one leading firm sets the associate salary standard and lesser firms feel compelled to match it? What does any of that have to do with the number of hours associates bill?
Law firms adjust associate salary in response to the actual labour market only on those rare occasions when the firms are swamped with client work and they have too few salaried lawyers, such as in the current “after-COVID” period and other post-recession recoveries when law firms, having once again laid off legions of associates to preserve partner profit, madly hire back more associates to get all the work done.
The only direct connection between the volume of hours worked and the remuneration paid to associates is the annual bonus: Bill past a certain (stratospheric) number of hours and receive a bonus in the tens of thousands of dollars. But the base salary remains the same for all associates, regardless of whether they make their targets or not. Falling short of hourly targets doesn’t mean you make less money; more likely, it means you’re fired.
It’s worth reminding ourselves just how incredibly profitable large law firms are. They are cash factories. Within the AmLaw 25, average profit per partner is north of $3 million. That’s average — meaning half the partners at these firms make more than the listed PPP. In the AmLaw 50, the cutoff is above $1.9M average profit. You have to go down past the 85th-ranked firms before the average partner takes home less than $1 million in pure profit. And let’s remember — that profit is generated directly on the backs of associates, who take home a fraction of the money they generate.
Law firms will make associates work incredibly hard no matter what they pay them. They work them hard until the associates quit, at which point they just go out and hire more. Firms would happily pay associates half of what they currently do if they could, and they could easily — easily, without the slightest threat to their viability or their comfortable profitability — pay more.
Whenever someone mentions to me how much baseball players get paid, I say, “Yeah, so think about how much more the owners must be making.” The next time you hear someone talk about high associate salaries, remember how much the firms are making. Remember that capital always pays labour as little as it can get away with. Break the connection in your mind, and in the industry, between how much associates make and how many hours they have to bill.
The reality is that those that can get away with the old model will continue to do so. The uplifting news is that there is rising growth in people-first firms, and less new-lawyer hesitation about exploring solo/small firm practice or alternate employment that values their law degree. The old model may yet live on, but there’s no question that their talent pool will shrink as a result.
Jordan, I understand this argument in the context of large firms, however, with the small firms I work with there is an important correlation between associate salaries and their financial performance. I know firms where the partner or partners are taking a financial hit because associates aren’t billing enough to cover the cost of their salaries and benefits. It is helpful for associates to track their financial performance to better negotiate raises and bonuses particularly in smaller firms. Bottom line – I take your point in the large firm context, but it does not extend to small firms. And at the end of the day it is always useful for associates to understand law firm finances, and to track their own performance and contributions to the firm.