As a practicing attorney in Illinois since 1984, I have been able to experience different types of law, different sizes of firms, and therefore different methods of compensation. It would be wrong to say that lawyers, or all professionals, do not pay much attention to the ways in which they are compensated. In our law careers, we know that these methods are constantly evolving with advantages and disadvantages for each. I started thinking about this in more detail after moving from law firms earlier this year. As my colleagues congratulated me on the move, many were curious about the internal dealings of my current and predecessor companies.
My 30 years of experience in the field has allowed me to work in a variety of settings. Like many attorneys, I started out as an associate. Within a couple of years, I started my own firm with some of my law school peers and then worked alone for almost 20 years. Most recently, I became a partner in a medium-sized law firm, which has allowed me to have professional experience as an associate, solo, and partner. Since my father was also a lawyer, observing legal developments throughout my life allowed me to gain a deeper insight into how the legal industry has changed, including how we get paid.
Once I became a partner in a law firm in 2006, I knew there would be many changes in my work life. Practicing on my own for 20 years and then walking into an office with an established company culture is no easy task. Talking with my co-workers and counterparts at other companies, I quickly learned that a favorite topic of discussion is how much you earn, how it’s calculated, how others get paid, and how to find better ways to determine compensation. I really found out how many formulas for success, if you will, really exist. And I realized how eager my colleagues were to learn more about this topic.
Most attorneys are familiar with the Eat What You Kill (EWYK) and Corporate Compensation formulas. According to the American Bar Association, the EWYK method compensates each attorney based on the amount of business he or she personally generates, while the corporate model tells law firms to pay attorneys based on what is generated. generates for the organization as a whole, not for each one. individual. Another formula for determining compensation that some firms practice is the value-driven work model, which is somewhat similar to the corporate model in that it is a profit-based system that gives each attorney in the firm the incentive to work for the financial well-being of the law firm. For example, this system requires lawyers to look for clients who have growth potential, those people who perceive the firm’s work as “high value” and therefore will move the firm forward. .
While those three formulas are broad, they provide a summary of how many firms compensate attorneys, which of course varies by firm size, category of law, and has changed over time. In each model, the formulas can include factors that are subjective, objective, or a combination. For example, in the corporate model, how does the company decide what percentage of the pie each partner receives? It was common, especially in smaller companies, for all partners to share the wealth equally, which I think is rare today.
As an attorney and certified public accountant, one thing I found interesting in talking to attorneys at various firms about their compensation structure is the myopic view they have of what actually makes a profit. Companies tend to focus almost exclusively on revenue. Your answer to making more money is to generate more fees. They rarely base partner earnings on how profitable they are. For example, if an attorney charges $1 million solely based on their time and billing, that is different than if an attorney charges $1 million but must also pay $250,000 in expenses for their associates, paralegals, employees, or just their office space. office. These numbers beg the question: should two lawyers who each generate the same amount of fees for the firm be paid the same?
As for associate salaries, they are often market driven. According to a study by the National Law Placement Association, in many markets, including major cities like Chicago, New York, Washington, DC, and Los Angeles, first-year associate salaries of $160,000 remain the most common salary in the firms of 700 lawyers, although they are not as widespread as before. Likewise, at firms with 251 to 500 lawyers and firms with 501 to 700 lawyers, the same overall salary was more common for the incoming class of 2015 associates (those who started work in the fall of 2015). For those who don’t land or seek work at the larger law firms, the salary range is wide, and many factors other than one’s alma mater will play a role in determining where one falls within that range.
What does this mean for law school graduates now compared to those who graduated a few decades ago? According to a publication by the American Bar Association, in the heyday of the 1990s, many recently graduated law students entered their first associate job with a law mindset; they believed that a degree from a highly respected law school and graduating at the top of their class, in addition to passing the bar exam, entitled them to a high-paying job at a major law firm.
As we are in the second half of 2015, we know that economic changes and changes in law firm finances over the last 10 years are forcing this mindset to change. Due to the high price of legal services, law firms are increasingly responsible for providing impeccable value to their clients day in and day out. Now more than ever, companies must be profitable and efficient to stay in business. Firms are looking for ways to weed out high-paying attorneys with a variety of techniques including hiring contract attorneys and outsourcing work to litigation support firms.
Despite the vast differences in attorney compensation practices, the symbolic advice I remember in discussions like these is that each firm attracts different types of people, and with each culture, size, and type of law and firm attorneys come from different ways lawyers are paid. . Our changing economy and legal culture will continue to influence this, but knowing and preparing for the exciting challenge of entering a new work environment after 20 years like I did is the key to finding success with your firm and colleagues.
