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The highest US lawyer salaries are rising as even the “space masters” of the financial sector are frowning.
The Star Corporate Lawyer Bid War sent offers of recruitment from rivals of the biggest “rainmaker” or profit generators, sometimes to more than $25 million a year. Even hedge funds specializing in distressed debts are beginning to oppose it, as bankruptcy partners charge more than $2,500 an hour.
Research data compiled by Headhunter Major of Lindsey & Africa shows that the average salary for our “big law” partners has jumped from $700,000 to $1.4 million over the past decade.
Industry observers say they don’t expect the upward reward trend to decline in the near future, even if business transactions in the US continue to sluggish. At the top, lawyers have a roster of clients filled with Fortune 500 companies and private equity companies, equivalent to tens of millions of dollars in revenue per year.
Law firms are willing to make big bets on such productivity. “If you want to make a lot of money from practicing law, then in this world, giving birth to Billings’ high labour is key,” says Karen Andersen, recruiter for Major Lindsey & Africa.
The growth of the legacy private equity industry into the vast “alternative assets” sector that manages trillions of dollars has created a demand for a new kind of lawyer, far beyond traditional generations of corporate dealers. The so-called fund formation specialists who help financial sponsors raise capital can order high fees. A $500 million funding could generate up to $5 million at legal costs.
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Troy Pospisil, co-founder of Ontra, a Blackstone-backed Legal Tech startup, says the toughest clients will continue to pay the law firm’s rate of rise for their most sensitive issues. “For the biggest deals, clients are willing to save 30% against businesses that don’t want to run 100 miles per day, 24 hours a day.
To make mathematics work, law firms are increasingly pleased to do what was once considered a sacrifice. Treat lawyers as individual superstars like hedge fund investors and soccer players. Few companies maintain a so-called lockstep structure in which partners in the same “class year” or service period earn the same salary. Moreover, most large companies create “unfair” partner statuses to generate more wage differentiation and leave more resources towards the biggest profit generators.
However, some lawyers point to the negative impact on culture and morale that such pay gaps are beginning to be brought about. They added that flashy hiring is also often accompanied by competition with fellow teams, increasing the costs of such external recruitment.
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With regard to those peers, the opportunities remain advantageous. Named after Cravath, Swaine & Moore, “Cravath Scale” sets de facto benchmarks for other major companies every year. Last year, he provided $225,000 for first-year associates, while seventh-year associates are based on a base salary of $420,000.
In the UK, the “magic circle” company is being attacked by US rivals, including Kirkland & Ellis, Latham & Watkins and Paul Weiss, which are built on success at home. British companies have had a range of successes, selling both partners and associates widely, even if wages are somewhat lower than US companies, on the surface of London’s culture and lifestyle.
Some people predict that new technologies will put a brake on legal costs escalation. One of the top ten law firms in the US measured by revenue, told FT that the management consultants they hired assumed that automation and workflow tools powered by artificial intelligence could eliminate two-thirds of junior litigation associates whose typical liability is manual document review.
While such deep cuts may not be hampered, the role of junior lawyers is still set to change.
Some US are considering following Arizona’s leads by allowing private equity and other “non-lawyers” encouraged under local “alternative business structure” licenses to further invest in law firms. The hope is that a new kind of professional services company with fresh capital and innovative management can offer integrated services such as accounting and asset management at a cheaper price.
However, these new business models are not expected to reach the top of the industry anytime soon. For now, top law firms continue to pay millions of dollars of “Golden Hello” sign-on guarantees.
At the same time, they do more homework to avoid mistakes and to get worse signatures. Long due diligence includes surveys and financial analysis to carefully predict the revenue of clients accompanying flawed lawyers to avoid sour recruitment contracts.
The problem remains that high-paying clients will ultimately reject billing fees that are far greater than inflation.
“You’re never going to get paid more than your clients,” says Tim Jeveons, managing director of partner recruitment at Lindsey & Africa Major.
