The big news to come out in the legal industry this week is the announcement by several national law firms that first year associates at BigLaw will now be paid $180,000.00 per year plus bonuses. (see story here)
Yes, licensed, law school graduates with 0 legal experience will be paid that amount with more experienced lawyers being paid up to $325,000.00.
In general, a law firm’s total revenue generated by legal fees is divided in thirds. 1/3 goes to the lawyer pay. 1/3 goes to overhead and staff salaries and benefits. 1/3 goes to shareholder or partner profit sharing.
For a $180,000.00 annual salary, the law firm must actually bring in three times that amount or $540,000.00 per year. On average, first year associates at BigLaw are required to bill at least 2000 hours per year. This means the client must be billed at least $270.00 per hour for the associate.
It’s not hard to believe that some clients will question what value they are receiving for that $270.00 hourly rate. Bank of America’s top lawyer reacted to the announcement by stating, ““While we respect the firms’ judgment about what best serves their long-term competitive interests, we are aware of no market-driven basis for such an increase and do not expect to bear the costs of the firms’ decisions.”
(see story here)
It is only a matter of time before the large institutional clients start seeking out other avenues for their legal needs. First of all, today’s information age has changed playing field for law firms. Clients are more educated and capable of handling many legal needs on their own. The forms exist just on the other side of a google search. Secondly, BigLaw only employs about 1% of the practicing attorneys out there. There are thousands of former BigLaw lawyers that either work for themselves or smaller boutique firms that can provide the same BigLaw service at a lower price. The true danger to BigLaw is that the smaller firm lawyer can typically offer even better service to each client. Clients want individual attention and customized solutions which are easier to create outside of the monolith of BigLaw.
The rising rates are like the 1980’s arms race with the USSR. BigLaw law firms are racing to match the salaries with nothing guaranteed except mutual destruction.
[photo credit: Tax Credits]