Since there's a lot of discussion of the issue in this morning's thread, here's some historical data on the so-called "going rate" in New York City (The process by which national firms started paying NYC salaries to first year associates in other cities was long and convoluted). I'll also list the median household income in the US in that year. All figures are in 2010 dollars.
1957: Going rate in NYC: $41K. Covington and Burling in DC was the highest paying firm in the country, starting associates at $49K. Median household income in the US was $37K.
1967: Going rate in NYC: $65K. Cravath caused much hand-wringing about Kids Today by bumping that to $74K the following year. Median household income was $48K.
1977: Going rate in NYC was $100K. ($70K in LA and $85K in DC). Median household income was $47K.
1987: Going rate in NYC was $123K. Cravath had again moved the market in a big way in the previous year, when the going rate had been $102K. Median household income was $48.5K.
1997: Going rate in NYC was $116K, although SCOTUS clerks and similar Advanced Life Forms were getting $136K. Median household income was $51K.
2005: Going rate in NYC was $138K. Median household income was $53K. In the fall Cravath bumped it to $160K in 2010 dollars, and here we are today. (Median household income has fallen to $49.7K).
Obviously the huge run-up was in the quarter century from the late 50s to the mid 80s, when starting salaries at top NYC firms essentially tripled in real terms, even though national household income was basically flat for all but the first few years of that time period (and has remained flat since.). The growth in associate salaries in the 25 years since has been comparatively modest. Note that until the sudden bump at the tail end of the housing bubble associate salaries were only about 10% higher than they had been nearly 20 years earlier. (Partner compensation is another story altogether).
And of course law school tuition has increased by a factor of three to five times since the mid-1980s. To put it another way, 25 years ago three years of private law school tuition equaled 35% of the going rate. Today it's just under 100%. Public law school tuition has gone from 8% of the going rate to 35%. Increasingly, it seems like the goal of many of those among the tiny percentage of law graduates who get big firm jobs is to live like monks for five years, while clocking insane hours doing mind-numbing work, simply in order to pay off their law school debt. And then? (It appears that the days of big firms making concerted efforts to "place" their departing associates are mostly gone.)
Thursday, September 8, 2011
A note on starting salaries at big firms
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Very interesting to see this all in one place in 2010 dollars.ReplyDelete
Very interesting. I wonder if the increase in the late 50s to the mid 80s is what inspired the law tuition increases of the mid 80s to now.ReplyDelete
I still anticipate a drop in biglaw attorney salaries. There is just too large a supply of smart, hard working and competent graduates to justify paying $160k to largely fungible new hires. I expect there to many more staff attorney hires.
I heard from a V5 partner that in the old days, associates weren't there to make money or to significantly help the firm's bottom line. They were paid a small wage and their primary goal was to learn and find their specialty. They would go through a rotation program designed to expose them to each area of law. Eventually they would pick one and if they performed well they would get raises and eventually make partner.ReplyDelete
I heard from a V5 partner that in the old days, associates weren't there to make money or to significantly help the firm's bottom line. They were paid a small wage and their primary goal was to learn and find their specialty.ReplyDelete
Yes. I think that kind of thing ended with the widespread adoption of hourly billing.
@213 I think there will be less hires maybe but the salary won;t drop for the big guys because of the pissing contest their involved in and because of the $$ they charge out to clients for associate work. Staff Attys billed out at a lower rate.ReplyDelete
"@213 I think there will be less hires maybe but the salary won;t drop for the big guys because of the pissing contest their involved in and because of the $$ they charge out to clients for associate work. Staff Attys billed out at a lower rate."ReplyDelete
I think the pissing contest is measured by PPP, clients, revenue and not what they pay first years. Billing someone at a lower rate but paying them less could still result in more profit to the partners, and more competitiveness on fees.
Pissing contests aren;t measured by how much they pay 1st years? really? So then why do all the firms fall in line with every raise and bonus.....ReplyDelete
Why do they pay more for fungible labor that is in sever oversupply, during an economic depression? Because they're dumb. Meanwhile, a few (or not so few) smart firms are figuring this out and moving to compensation structures that effectively lower the average starting salary.ReplyDelete
1. BigLaw firms have cut associate compensation -- bonuses were $35K for first-years in 2005 and 2006, and about $45K in 2007 (including special). In 2008 they were $17.5K and lower in 2009 (2010, including spring 2011, was back up to 2008 levels). Bonuses are a big part of the mix. Also headcount is down and hours per associate are up. So, they've already achieved the cost savings without being first-movers on a salary cut, which looks unprestigious (regardless of whether that is irrational).ReplyDelete
2. Among the many, many things these figures elide is that cost of living has skyrocketed in the markets where you have to live to earn this money in the past 50 yrs. What did a median 1BR apt in Manhattan or Brooklyn cost in 2010 dollars in 1957? I'm guessing not $2.5-3K/mo. People earning median income generally do not (cannot) live in these markets. There are larger capitalist forces at work here; see globalization, specialization, etc.
3. Your general point about the value of law school is good (cost v. payoff). Same is true in medicine -- salaries were only slightly lower, but paperwork was way less pre-HMOs (pre-1990s) and med school was much cheaper. Again, larger forces at work.
No one will weep for them, but associate comp at top firms is down significantly in the past 5 yrs. This is underreported.ReplyDelete
Total firt-year NYC associate comp in...
2006: $145K base + $35K bonus = $195K in 2010 dollars ($180K in 2006 dollars).
2007: $160K base + $35K bonus + $10K special bonus = $215K in 2010 dollars ($205K in 2007 dollars).
2010: $160K + $7.5K = $167.5K in 2010 dollars (add another $7500 or so if you want to include spring 2011 bonus).
And this is just first-years. Overall comp is even further down from peak for midlevels and seniors.
Another highly overlooked fact that people on the outside don't know. Biglaw is almost entirely cash comp. Health insurance sucks ($400 per month at my firm with a 3K deductible) and no 401(k) match that you receive at most normal jobs. Also, there is severe compression at a lot of big firms both in salary raises and in the bonus structure.ReplyDelete
You should also look at how interest rates for student loans have changed. As late as the mid-2000s, you could consolidate and reduce your loan interest rate to like 2%. Due to what I believe was a 2005 legisltaive or regulatory reform, private consolidation at a discount was barred. Now most loans are fixed around 8%.ReplyDelete
Thus even discussing the surge in tuition law schools charge does not capture the full price increase in going to law school; higher interest rates add tens of thousands of dollars to it.
Try explaining this to prospective law students.
@3:28 - whats the difference between "dumb" and "pissing contests"?ReplyDelete
I've seen the point made before that the switch in law firm structure from partnerships to limited liability entities has greatly changed the way the firms do business. There is much less loyalty at the top where the partners are not nearly as invested in the survival of their firms, ie, they know they won't go personally bankrupt if their LLP fails, and this also leads to much less emphasis on developing their associates into attorneys who will one day make partner. The associates are there to just grind out the hours that end up in the partners pockets.ReplyDelete
Does anybody know of an analysis of what percentage of incoming associates can truly expect that one day they will make partner? And whether there is any analysis of whether that percentage has changed over time? I'm willing to bet that that percentage has plummeted over time.
A professor of mine once said that "partner" in the modern biglaw context is kind of a misnomer; he said that both the initial partnership decision and the removal of a partner are done by a committee and all other partners are instructed to go along with its recommendation…or else…ReplyDelete
All of you who pine for the alleged better days when associates were not just grist for the partners' mill ought to read the 1973 account of law firms (covering BigLaw from the end of WWII to the early '70s) "Lions in the Street" by Paul Hoffman.ReplyDelete
How does less loyalty translate into developing associates into partners? Greater leverage = greater profits, it's that simple.
"Health insurance sucks ($400 per month at my firm with a 3K deductible)."ReplyDelete
You mean you have to pay for your health insurance?
"Does anybody know of an analysis of what percentage of incoming associates can truly expect that one day they will make partner?"ReplyDelete
I think it's around 5%.
5:36, Executive summary si vous plais?ReplyDelete
Yes, $400 is the monthly premium.
Jesus. If you're young and healthy you should be able to get decent insurance for $400 a month on your own.ReplyDelete
"If you're young and healthy you should be able to get decent insurance for $400 a month on your own"ReplyDelete
Generally, you have to choose one of the options the firm at which you're working provides. It's more expensive if you don't and you attempt to get health insurance on your own in the private market.
Another way you subsidize the older biglaw partners, lol.ReplyDelete
There's also a cheaper high deductible plan which basically is like having no insurance at all. I probably could get cheaper insurance on my own, it's just an example of how comp isn't as great as it seems in biglaw. No matching on the 401(k) is also a big thing.ReplyDelete
6:31 - Loyalty is diminished when partners are not as invested in the firm. Being less invested in the firm leads to not really giving a crap about developing the younger associates into partners who one day will bring in more clients. Less loyalty by the partners to the firm leads to a race to squeeze as much work as you can from your associates without caring about the long term performance of the firm. Conclusion - if Biglaw continues with the pyramid structure and continue to foment disloyalty they will all go down eventually.ReplyDelete
I think I could find cheaper on the private market...I haven't checked lately so I'm not certain about that.
I guess I disagree. Whether there's loyalty to the firm's long-term existence or not there's still short-term greed. You don't need to develop young attorneys into partners when you can snag them from the lateral market.
Complaining about $400.00 per month for health insurance? I've been Cobraing my wife's health insurance for three years at $1,400.00 per month. I would rejoice for $400.00 per month.ReplyDelete
I assume the $400 comes out of pretax income, at least.ReplyDelete
It's not comparable. Cobra is always more expensive and I assume yours is a family plan. Also remember my $400 / month plan has a 3K deductible.
That's hilarious because your total annual expenses are highly unlikely to be 3k. For 3k you can get a complete physical + EKG + multiple doctors visits for flu and so on. What firm is this? Sounds like you are heavily subsidizing older partners and pregnant women, who I assume pay the same $400.ReplyDelete
8:12 You're right, its not exactly comparable. But $400.00 per month out of your pretax income is not that bad.ReplyDelete
I wouldn't even pretend to cry the blues here where many are way worse off than me. My only point is that although the cash comp in biglaw is high, the non-cash benefits are significantly less than other private sector jobs.
It's not a subsidy, it's a deterrent to taking the insurance and it worked. I have the high deductible plan (10K) which allows me to have dental (decent dental plan). The high deductible plan is significantly cheaper for the firm.
What ever happened to Obama's promise of affordable government healthcare? It's been two years and I still don't see any "Pay $40 per month for total coverage" government option out there, like they have in Massachusetts.ReplyDelete
It's not a subsidy, it's a deterrent to taking the insurance and it worked. I have the high deductible plan (10K) which allows me to have dental (decent dental plan). The high deductible plan is significantly cheaper for the firm.ReplyDelete
I see. Yes the $10k option sounds good. It's basically a "medical disaster" plan.
What would be more interesting is contrasting starting salaries with minimum billable hours numbers, to the extent that they are available. An increase in salary isn't really an increase if you have to work harder through increased hours expectations or unreasonable deadlines and client demands. The average work week for the typical associate at a top-tier firm is probably more than twice as long as the average for everyone else in the employment pool. It may be fun tracking "salary wars" but the associates fortunate enough to see a raise even though they did nothing to "earn" it tend to pay for it, one way or another.ReplyDelete
Yeah, on an hourly rate basis, and factoring in the psychic/life damage of working that much, associates aren't really winners.ReplyDelete
Yeah, on an hourly rate basis, and factoring in the psychic/life damage of working that much, associates aren't really winners.ReplyDelete
I've had a bunch of conversations around this topic with my classmates. Since we're at a tier 2 school, only those of us at the very top of the grade curve even have a shot at decent paying mid-sized firms available here in Jersey.
A couple of my buddies who are also in the "came here for the full ride, are knocking out an A average" boat bust my chops about not bothering with all the OCI crap and chasing a high paying legal job. They don't seem to get that some folks just don't want to live the soul-sucking life of a firm associate. Sure your salary may be $110k, but on an hourly rate you're making 1/3 what I make tutoring MCAT kids, and I get to make my own schedule.
It boggles my mind how some people choose to prioritize their work/life balance. Could also be that being 10 years older than these "law school whippersnappers" I'm just too tired to run in that firm-associate hamster wheel.
It sounds to me like a government job is the real prize. The pay is lower than BIGLAW, but they don't fire you for not making partner. You can pretty much stay forever.ReplyDelete
It boggles my mind how some people choose to prioritize their work/life balance.ReplyDelete
I think this flows from the same mentality that drives many young people to go to law school in the first place. Getting a job in big law is just another gold star on the transcript of life, like graduating with honors, getting into X law school, making law review, etc.
Maybe for some people, not for me. The hours suck and I know I have a shelf life but I'm living a modest life and making a huge dent in my loans. I know I can live just fine on 60K, so sacrificing two years for a lifetime of financial freedom is worth it for me. I get one Saturday off per month and I work 12-16 hours the other days day so believe me I'm motivated to get out.
I think there's another group of people on the opposite end of the spectrum that like to live large and blow every dime they make. I feel bad for those people when their time comes.
I'll give you another perspective. When I was in law school at a T-14, going to a big firm is just what everyone did. That's pretty much the option that was presented to us and that's really the only world most of us knew about (that or public service which I had no interest in at that time). There's also a widely held belief (probably inaccurate) that if you work hard for a few years at biglaw you'll have great exit options. I guess that's just another slant on 6:00's point.
I'm surprised to hear that biglaw exit options are so limited. I had always heard that if you don't make partner at your big firm, you will be marketable to lesser firms. I had always thought that midlaw firms, for example, mostly recruited these types of people. Of course, I've never had a job for midlaw or biglaw, so I have no idea how it actually works.ReplyDelete
I know many of us struggle to emphasize the point that the job market for lawyers was terrible long before the recession, but maybe this is one area where the recession is responsible for something entirely new: unemployable biglaw washouts. I didn't think such a thing existed.
I had always heard that if you don't make partner at your big firm, you will be marketable to lesser firms. I had always thought that midlaw firms, for example, mostly recruited these types of people.ReplyDelete
Speaking as a midlaw partner, I'd say biglaw refugees are marketable to us, but it won't be easy. My firm, for example, has never "recruited" biglaw refugees, but we have hired our fair share of them when they've come our way and would satisfy a need.
By way of contrast, we've almost never hired laterals from firms "below" us. The few times that we've done so (to satisfy an immediate need), the hires haven't worked out because the quality of their work wasn't up to the mark.
Unless you have captive clients that you can bill the pants off, it is bad all the way up. I know 20-year lawyers (non-equity partners) without those kinds of clients who have been downsized from Biglaw. The market is ugly for them, too, without the "book of business" (or if they think they have business and are unable to wrest it from their former employer) and this is something of a new-ish development, since traditionally making partner meant employment for life. There is also a lot of juggling of the various flavors of partner/shareholder to account for the fact that some partners are more equal than others.ReplyDelete
I'm very interested in LawProf's listing of first-year rates over time. This is very different than the story I've heard. I would have expected the big leaps to have come in the 1980s (when firms claimed they had to pay big bucks to stop associates from choosing Wall Street), the late 1990s (when law firms claimed they had to pay big bucks to stop associates from choosing dotcoms)and again mid-00s (Wall Street again). I wonder if the drop that appears in comparing 1987 to 1997 was an effect of the 1991-93 recession? Did Big Law salaries ratchet down then?
His data on both law firm starting salaries in NYC and median household income appear wildly wrong.ReplyDelete
For starting salaries in NYC in 1993 the going rate was about $85,000.
My bad; he is using 2010 dollars; still sources would be nice.ReplyDelete
I am not a first year at a large wall street firm and before I started I used to think that paying students who were 25 years young $160,000 was crazy and thought what could they do to "earn" this. (I am much older and had worked in an Investment bank and as an CPA for 15 years prior to law school). Now that I have completed my first year, I think that associates are UNDERPAID. I have worked for many years and I have never encountered an environment like it.ReplyDelete