Sunday, March 7, 2021
Economy and Analysis Is your Small Business a Law Firm?

Is your Small Business a Law Firm?


If you are a partner in a top law firm your expenses on junior associates salaries have either just gone up or probably will. The legal profession is the proverbial “keeping up with the Jones,” as talented new blood is the lifeline of long-term firm success. Perhaps you aren’t a partner at New York firm Milbank, Tweed, Hadley & McCloy LLP, who just raised the starting salary of recent law school grads to $190,000 a year, the trickle-down effect is likely to hit you as well. The size of law school graduating classes is relatively small, compared to that of their undergraduate institutions. The University of Pennsylvania School of Law, ranked fourth in the nation by Forbes, had a recent graduating class of roughly 250 students.

Compensation, or how to divide what is left over, is one of the most difficult challenges facing any law firm management committee, whether a two-person firm or a 2,000-person firm. The goals of the firm will set the tone for how staff is paid. Just like any other business, a cognizant decision should be made up front as to what model of compensation will be used. The goals of the firm may be future looking, such as providing for succession to the next generation and creating a legacy; or the goals of the firm may focus on the here and now, taking as much money from current revenue as possible.

There are several reasons why some solo practitioners and small firms are reluctant to pay large salaries to associates.

They don’t want to pay to train new, unprofitable attorneys. Training new attorneys can be a time-consuming endeavor. Large law firms, the government, and public interest groups have the resources to provide formal and lengthy training programs for their new hires. The solo practitioner will have to spend a lot of time supervising the associate’s work. Assignments must be scrutinized and reviewed. Associates will largely be unprofitable in the beginning stages of employment. To minimize the loss, employers justify paying a minimal salary until the associate is up to speed.

They don’t want to invest in someone who will likely leave for another firm. This can be a cost of doing business for a small firm. If you have trained a young attorney and then they receive a substantially higher offer from a larger firm, you will probably need to match this offer or come up with another incentive that will keep them with you. You can’t really blame the young associate who will have a myriad of expenses, most important law school debt, for taking the higher salary and running with it.

They only care about the bottom line. The harsh reality is that a number of small law firms will pay only the bare minimum and work new associates to death. It is not surprising that turnover is high at these firms and the work often shoddy. This type of firm knows that when an associate leaves, they will have 20 plus new resumes that week to take their place.

While employers have some good reasons for keeping associate pay low, many are just taking advantage of the oversupply of unemployed attorneys. One should be hesitant to refer business to firms that do not pay their employees well because the low morale and high turnover tend to result in a lesser work product.


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