Law Firm Economics and You

Why is this analysis important? It is so because all the components of this process affects your life as a lawyer in a law firm. How many hours your firm expects you to bill will dictate how long your workday is and whether you must work evenings or weekends or both to meet expectations. For example, 1,800 billable hours a year are achievable by billing an average per day (although there is no such thing as an average day for a lawyer) of 8 billable hours, five days a week, and allowing for three to four weeks for vacation and holidays. Depending upon the type of work you do, the type of clients your firm has, and the billing policies of your firm, billing 8 hours could take you anywhere from 8 to 11 hours a day. The overriding message here is that life for an attorney at a law firm is almost never a 9-to-5 job and frequently requires evening and weekend work, especially at the associate level. Part-time positions are gaining acceptance but are still the exception rather than the rule.




The type of clients your firm has and the kinds of matters handled for them may dictate hourly rates and, consequently, how much can be made and paid for the attorney's work. Together with the pressures to pay competitive salaries, these factors will also affect your life.

Imagine you are a client hiring a large New York law firm to handle your house closing. After its lawyers have drafted and negotiated the contract, searched title, worked out practical problems, and attended the closing (which may take a few hours because of haggling), you receive a bill from the firm for 10 hours, which has been multiplied by a $175 per hour billing rate. You now owe $1,750 for this simple closing. Obviously, these types of client matters cannot be handled affordably by such a firm. If taken by a smaller firm that charges $50 an hour, that same matter would result in a $500 bill. But unless income is generated through a method other than hourly billing, or unless less-expensive paralegals handle more work, the economic consequences for the smaller firm may be lower salaries for the associates and offices located in a lower-rent district.

Although there seems to be a glut of lawyers these days, and many recent graduates have difficulty finding employment, the most prestigious and larger firms continue to compete for attorneys. During the 1980s, this competition accelerated the increase in salaries for starting associates. Law school graduates in New York, for example, in 1991 commanded an annual salary of more than $80,000 from large firms, an increase of more than 100 percent over starting salaries in 1981. And, since no other lawyer in the firm wants to make less than the starting associates, the increases have a "trickle up" effect, ratcheting associates' salaries skyward. But look again at how income is generated. In many instances, it is the number of hours times the billing rate. Competition to keep clients usually discourages firms from increasing their billing rates, so billable-hour requirements must rise if the firm is to collect the income required to meet its rising salary expenses. The effect on your life: in general, starting salaries that rise faster than billing rates usually mean longer hours at the office.

Compensation

There is no doubt that law firms pay their associates and partners, on the average, much more than most other employers of legal talent. But there is a wide range of compensation between firms in the same city and between firms in different cities.

Be forewarned, however. The money has an allure that should not tempt those who do not have, or cannot develop, the personality for law firm life. Because people tend to live their lives at the highest level their incomes will allow, getting accustomed to a high salary at the beginning of your career may severely limit your options to change positions.

Super Support

Depending upon the size of a firm, support staff could be as small as one secretary or as large as a battery of word processors, secretaries, messengers, administrators, housekeeping personnel, and even chefs and chauffeurs. By and large, the quality of the support staff at private law firms cannot be duplicated in any other legal environment. Usually, an attorney shares a secretary only (if at all) with one other attorney, and these secretaries work harder to get the job done (and get paid substantially more) than secretaries in other types of businesses. The right secretary can help your life immeasurably. Your work product will look professional even if you would not otherwise know how to accomplish this, your efficiency can increase tenfold, your administrative burdens can be lifted, and you will easily negotiate the maze through which you must travel to get your written product from your head to your client's desk. If your success at your firm depends upon getting the job done whatever the hour and no matter how big the task, you are going to need this dedicated and competent support.

Firm management has finally entered the twentieth century. In most medium and large firms, one or more administrators who are not lawyers guide the firm through its economic and human resource planning and decision making. This removes most of the administrative burden from the attorneys. However, even the most well-managed firms require some method for their lawyers to make certain policy decisions, whether accomplished by a partner executive committee, committees of partners and associates, or the partnership as a whole.

Advancing to Partnership

The division of a law firm between partners and associates creates an expectation among new legal employees that they will be admitted to the partnership at some time in the future. But the path to partnership may be hazy at best, full of pitfalls at worst. The path is not the same for everyone; it may differ within specialty sections of firms, and it may shift between the day you start and the day you are to be considered. If the ratio of partners to associates is an important factor in your firm or the profitability of your specialty section is paramount and you come up for partner when few slots are available, you may not be admitted to the partnership.

Partnership, however, may not be as attractive as it once was. Consider all those partners in dissolved or struggling firms, personally bearing the brunt of an economic downturn. In addition, many firms are considering or have instituted other types of positions: contract partners, non-equity partners and a potpourri of "counsel," to name a few. The probability of making partner in a firm decreased dramatically in the early 1990s. The creation of alternative positions further lessens the likelihood that an associate who remains with one firm will make partner there. On the other hand, it has increased the ability of firms to retain valued lawyers.

In a recent study, it was found that young people first entering the job market believed that their hard work, dedication, and loyalty would determine the success of their careers. Political intrigue, mentors, and learning the rules and playing by them were thought to be unimportant.

A word to the wise: skill and hard work will surely help, but don't under-estimate those other factors.