Over at law.com, Nathan Carlile writes about pay compression between senior associates and junior partners. The piece is intriguing, undoubtedly ample fodder for future posts. For the moment let me direct you to one thought:
Headaches over compression go back generations, consultants say, with smaller, less profitable firms especially hard-hit. That's because the market determines associate salaries, but profits determine partner pay. And the two don't always match up.
While it's true that partner profits have also increased -- Carlile mentions 76% growth over the past 8 years at Patton Boggs -- two points are warranted. First, 76% over 8 years is about 7% per year, just 4.4% on an inflation adjusted basis. That's the mark of a business growing in line with the economy; a stable industry, without much going on in the way of innovation, almost a commodity.
Second, as mentioned before, the value for legal services is far from clear when based on a billable hour. No doubt stellar academics and logical adroitness are essential for admission to a top 10 law school, but it can't seriously justify $250-$350 per hour of due diligence and glorified paralegal work. Without a better articulation of an attorney's value proposition, an anemically stable 4.4% will likely drop further still.
There is perhaps no better way to illustrate the problems with the business of law. If the market tells you your cost of goods (associate talent) are increasing to such an extent that profits are compressed, bandaids won't help. Perhaps a brutally honest examination of your business model might be a good place to start.
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