Archive for the ‘Associate compensation’ Category

Assisting Lawyers In These Difficult Times

March 13th, 2009 by Jim Cotterman

Many law firms are reducing salaries and laying off associates and partners as they struggle with the economic recession.  Many of these laid-off lawyers may benefit from people experienced in dealing with traumatic events such as these.  We encourage them to refer those lawyers to the lawyer assistance program in their state or to the ABA for a referral to their state lawyer assistance program.  The majority of the programs provide free services (98%) and are handling crisis counseling, post traumatic stress, career transition, stress, depression, suicide prevention, anger management as well as addictions (and relapses).  The toll free number for referrals is 1-866-LAW-LAPS (or 312-988-5713 direct) or they can access their lawyer assistance programs through CoLAP’s website

This referral is a free service provided by the ABA in order to help all lawyers with health and well-being issues, especially those lawyers who may not have the tools to deal with sudden loss of employment, insurance, fear of how will I pay the bills, law school loans, feed my family, etc.  There are real risks to lives when people are placed in such a sudden crisis with this type of trauma.  Many LAPs are setting up support meetings for those in this type of situation and they are facilitated by an expert.  It is lawyers-helping lawyers.  For more information, contact:

Donna L. Spilis, Staff Director
ABA Commission on Lawyer Assistance Programs
321 N. Clark Street, 19th Floor
Chicago, IL 60654-7598
Ph: 312-988-5359 or 1-800-238-2667 Ext. 5359
Fax: 312-988-5785

Law School Graduates — Should They Apprentice?

August 28th, 2008 by Jim Cotterman

What ever happened to the concept of an apprenticeship?  An apprentice is defined in Webster’s Collegiate dictionary as “one who is learning by practical experience under skilled workers a trade, art , or calling.”  This is an essential element to progress from book knowledge to practical skills.  From educated student to effective counsellor.  Apprenticeships are evidenced in medicine where the economics of getting the requisite education are more severe — per year tuition costs are comparable but medicine may edge a bit higher on average.  And medical school is typically a four year curriculum.  The newly minted physician then must complete a multi-year residency.  I raise this because one might assert that if law school graduates had to apprentice they would not pay (currently or with debt) the cost of gaining a law school education.  The assertion may have value, but it should not effectively dismiss the concept of apprenticeship.

Lawyers are able to practice without a formal apprenticeship and the very best of the best are paid significant incomes.  Yes, there is an element of the open market economy as well as traditional supply and demand economics at play here.  And there are many factors that come into play.  But the concept is worthy of debate.  For surely the status-quo is not tenable for law firms or their clients.

To open the debate further I recommend the blog post “Should associates pay their law firms in the first 2 to 3 years?“. 

What is a Bonus?

January 14th, 2008 by Jim Cotterman

Some firms consider a bonus any payment in addition to base pay.  So a distribution beyond draw/salary made in accordance with a defined allocation is a bonus.  No attempt is made to distinguish performance from individual to individual; or for any one individual, from actual to expected contribution.  Such payments commonly arise out of point, percentage, tier and lockstep systems that align the distribution with the underlying pre-existing allocation for base pay. 

A slight variation of the above occurs when there is a pre-determined distribution allocation that differs from base pay allocation.  Sometimes there may be more than one such distribution tier.  For example, the first $1,000,000 is distributed on base pay, the next $1,000,000 is distributed equally, the next $1,000,000 on some other basis.  A variation of this for admitting new owners is properly examined in an upcoming post.

Sometimes firms use a bonus to reward extraordinary contribution.  When best done, extraordinary contribution is narrowly defined.  Recipients are few and the size of each bonus large.  Under this definition only about 2.5% to 5% of contributors would qualify for a bonus.  A large bonus exceeds 20% to 25% of base pay.

Other firms will award a bonus when an individual’s performance exceeds that expected for his/her base pay.  Usually the exceptional performance must warrant a bonus of at least 10% of base pay.  Under this definition many more individuals might qualify for a bonus.

Then there are the firms where a bonus may be awarded an individual who measurably outperforms his/her peer group.  This is generally more common in point, tier and lockstep systems that have a bonus modifier.  Here one must not only excel but excel beyond that of his/her peers.  Again the differentiable performance should probably warrant a bonus of at least 10% of base pay.

These are the most common bonus types.  If you have experienced a different approach, please join in with a comment.

The next question may very well be which method is best?  That largely depends on the underlying base pay program, the desired values and behaviors as well as the strategic intent of the organization.  There is one type of bonus system that the author has little regard for — small differentiated payments to nearly everyone.  That approach is likely to create more trouble than it is worth.  One might be better off running an extra payroll.  You are likely to accomplish much the same result with significantly less effort and less downside risk.

Another question typically asked is why minimum bonuses of 10% or 25%?  By setting a minimum bonus as a percentage of base pay the threshold automatically adjusts as pay increases.  For example, a $10,000 bonus for someone making $100,000 or less conveys something very different from that same amount for an individual with $1,000,000 in base pay.  Another reason is to recognize the lack of precision possible in pay decisions.

The Often Overlooked View Of Associate Compensation

November 6th, 2007 by Jim Cotterman

The market occupies itself with the compensation contest of the leading law firms.  And although this makes for good reading, it is not the whole story.  The National Association of Law Placement (NALP) collects and publishes a wealth of information regarding compensation and hiring patterns of recent graduates and associates in law firms.

Test your knowledge of the market:

1.  How many law school graduates were there in 2006?

2.  What percentage were hired by law firms?

3.  What size law firms hired the largest number of those graduates and how many did they hire?

4.  What size law firms hired the second largest group of those graduates and how many did they hire?

5.  What was the median starting salary for the 2006 graduates?

6.  What does the starting salary curve for look like (i.e. bell shaped, skewed, etc)?

7.  Since 1992 how much have overall associate salaries increased?

8.  How does that compare with inflation for the same period?

9.  How does that compare with the profession’s change in prevailing billing rates for the same period?

10.  What do the long term starting salaries tell us about the future?

Most of the answers are available from NALP.  Spend some time on this site to gain a better understanding of what the recent graduate market is like.  Also read this article, The War for Talent and Starting Salaries,  from Ward Bower about the supply and demand equation for recent graduates.

Now the rough answers:

1.  44,000
2.  55% (24,000)
3.  Over 100 lawyers (9,700)
4.  2 - 10 lawyer firms (8,400)
5.  $62,000
6.  Bi-modal with the small firms clustered just below the median (around $45,000) and the large firms forming the upper mode around $140,000.
7.  Doubled (100% increase)
8.  1.4 times inflation
9.  Prevailing billing rates increase 1.8 times inflation for the same period.  Consistent with how the fee production of associates tracks with their compensation costs.
10. Large firms compete for top graduates in top firms.  They hold the line on increases during and immediately following a recession, then accelerate the pace of change once the market is solidly underway again.  The larger firms drive more aggressively regarding salaries than do their smaller competitors. We will likely see a slow down in increases when the economy faces its next recession. Then afterwards the competition will heat up once again.

Associate Pay Changes

November 1st, 2007 by Jim Cotterman had a good article (Midsize Firms Go For Big Changes) regarding how law firms work through the difficult issues of associate pay.  Realize that the definition of ”mid-size” is very much market dependent.  Yet many firms are grappling with recruiting and retaining young lawyers in a fiercely competitive market (at least for the better graduates from the better schools).  The market leaders continue to push to find where the market will segment.  $145,000 for first years did not do it, and neither did $160,000 — will $180,000? $200,000?  And that is just salaries — layer on a signing bonus, year-end bonus, fringe benefits and employer mandated benefits to see the entire picture.  These “mid-size” firms are balancing competitive pay, client concerns over value, partner concerns over investment (profits) and associate concerns over lifestyle.  More changes are likely as the market sorts out growing demand against a relatively fixed annual supply of US trained lawyers.

The word on the street is that the year over year increases are staggering and that compression is rampant — or is it?  A quick look at NALP data for April 1st 2007 and 2006, even allowing for sampling error yields a mixed view.  See the table:

 Associate Pay Increases

There is a mixed result.  Inflation for the period was 2.6%.  Some increases clearly resulted in real dollar gains year over year; while others did not.  And the change in spread (a measure of compression) indicated an equally mixed result with smaller firms doing quite nicely in this regard.