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ALA Currents is a free newsletter about law firm management trends and innovations provided exclusively upon request to members of the Association of Legal Administrators.

News & Views

ASSOCIATE SALARIES: GET WHAT YOU PAY FOR

By Daniel J. DiLucchio
djdilucchio@altmanweil.com

Twenty-two of the United States’ top general counsel characterized the current $160,000 starting salaries for law firm associates as “outrageous,” according to an Altman Weil survey on increases in associate salaries conducted in April 2007. When it comes to the total cost for a new associate, however, the starting salaries are the tip of the iceberg. As my partner Ward Bower points out in his recent article, “The War for Talent and Starting Salaries,” (April 2007, Report to Legal Management), the starting salary of $160,000 for new associates in some cities translates into fully loaded compensation in the range of $200,000. Once you add to this compensation figure the overhead of a large, major city law firm of approximately $200,000 per lawyer, you arrive at a total cost of $400,000 for a first-year associate (which does not include the possibility of signing bonuses or actual recruiting costs).

As the cost structure of the large law firm diverges more dramatically from that of the client law department, it seems natural for a general counsel to weigh his or her alternatives and ask, “What would $400,000 buy for my law department?”

According to the Law Department Metrics Benchmarking Survey, the average expense per lawyer for a law department of 26 or more lawyers is $302,185. This is a fully loaded cost, including compensation, occupancy, technology, and other associated corporate charge-backs. To put this number in sharper perspective, one must keep in mind that corporate law departments generally hire lawyers with three to five or more years of experience. Based on the level of experience and value, the $302,185 expenditure looks quite attractive compared to the cost of a first-year associate. Of this $302,185 figure, the average compensation and benefits for an in-house counsel totals $250,536, leaving a difference of approximately $51,000 for in-house overhead costs.

By adding a first-year associate in his or her budget, a general counsel could add an in-house counsel position and still have an additional $78,000 to spend on prevention programs, compliance, training, technology, or additional paralegal or support staff assistance.

Looking more granularly at opportunities to enhance a corporate law department, the following are some buying options based on the $400,000 first-year lawyer costs and what the Law Department Compensation Benchmarking Survey reports could be purchased in-house for that sum:

• You might add a Deputy Chief Legal Officer for an average total cash compensation (salary plus bonus) of $365,800. After adding the $51,000 in-house overhead, the cost of adding a Deputy is $416,000. The benefits of adding such a position include adding a highly experienced lawyer / manager as well as allowing the Chief Legal Officer to spend more time focused upward on the Board and key executives.

• A Managing Attorney could be added to the organization for an average total cash compensation of $243,700. After adding the $51,000 in-house overhead, the cost of adding a Managing Attorney totals $294,700. The benefits of adding such a position include the ability to improve the management and delivery of the corporation’s legal services, deliver additional preventive law, and extend improved cost control.

• A High-Level Specialist, a lawyer with 12 or more years of experience and a specific practice area specialty, could be added to the law department for an average total cash compensation of $239,400. After adding the $51,000 in-house overhead, the cost of adding a High-Level Specialist totals $290,400. The benefits include the internalization of more legal work and the reduction of outside counsel costs associated with that work.

• A Senior Attorney, an attorney with eight or more years of experience, could be added for an average total cash compensation of $169,500. After adding the $51,000 in-house overhead, the cost of adding a Senior Attorney totals $220,500.

• According to the 2007 Annual Compensation Survey for Paralegals / Legal Assistants and Managers, the total cash compensation (salary plus bonus) for a paralegal is $59,973. Even when adding occupancy, technology, and other corporate overhead of approximately $51,000 per legal service provider, a general counsel could add three paralegals or more to his or her staff.

These observations are not intended to minimize the reality of the talent war in which law firms are currently engaged. The war for talent is real and strategically important to the futures of the firms. Law firms are dependent on their talent pools and must be constantly attracting the best available. At the same time, however, general counsel are responsible to their corporations. They must ensure that they are spending their legal dollars in the most effective and efficient means possible while providing the highest quality legal counsel required.

Additionally, these observations are not intended to suggest that law firms do not provide services of value to their corporate clients. They do provide such services. Because so many general counsel feel outraged by the starting salaries for new associates, however, it makes sense to ask what one could purchase for $400,000. You don’t always get what you pay for … but sometimes you do.

SURVEY: WORKERS MORE CONFIDENT, INCLINED TO NEGOTIATE PAY

Job candidates are more apt to ask for higher starting salaries this year, and companies may have to up the ante to attract them. That’s according to an annual study on employment and compensation trends by Robert Half International (RHI) and CareerBuilder.com titled The Employment Dynamics and Growth Expectations (EDGE) Report. As the competition for skilled labor has become more pronounced, 58 percent of workers polled said they are more likely to negotiate a better compensation package today than 12 months ago – double the number from last year’s poll.

Since The EDGE Report was introduced in 2005, the number of employers expressing concern about the ability to fill open positions has climbed steadily. As found in last year’s survey, professional and technical staff members were reported to be the most difficult to recruit. Forty-three percent of employers said they are struggling to find candidates for these positions, an increase from 37 percent last year.

For more information, visit Robert Half International and Career Builder online.

Management Innovations

LAW FIRMS DEMONSTRATE COMMITMENT TO WORK/LIFE BALANCE

While recruiting is a struggle in law firms, retention is an even bigger challenge, one that has led to the launch of a program called the Project for Attorney Retention (PAR). PAR works to stem unwanted attrition among lawyers – a benefit for both legal employers and the lawyers themselves – by promoting work/life balance and the advancement of women in the legal profession.

“PAR is the leading voice in the legal profession for practical, creative research and advice on work-life balance issues,” said James Sandman, Partner at Arnold & Porter. “PAR members value work-life balance and show it by their support of the best organization dealing with these issues as they affect lawyers.”

PAR previously issued reports about part-time work in law firms and corporate law departments, and it will launch a new study of part-time law firm partners in October 2007. In addition to supporting PAR’s ongoing work, members will receive benefits such as a review of their part-time policies and a teleconference for their attorneys who work reduced hours about how to advance professionally. PAR’s Founding Members include:

For more information, visit PAR online.

Peer Points

ALA Management Solutions^SM is a free service provided as an ALA membership benefit. The professionals who staff this help desk explore resources and share information about hot law-office management topics like the one addressed here. If you have a question, call ALA Management SolutionsSM at (847) 267-1252 or e-mail infocentral@alanet.org.

TRAINING A NEW ADMINISTRATIVE PARTNER
What reading material do you suggest to get our new administrative partner up to speed?

Visit the ALA Management Encyclopedia^SM for the following articles: “Governance in the Law Firm: A Need to be Business-like,” “Practice Groups: Organization and Management,” and others regarding strategic and succession planning. These articles are accessible through an Encyclopedia subscription or by individual article purchase.

Relevant books are also available through the ALA Bookstore. See First Among Equals, Think Ahead: How to Prepare a Law Firm Strategic Plan, and The Business Guide to Legal Literacy: What Every Manager Should Know About the Law.

You might also want to check out articles from legal consultant Joel A. Rose & Associates Inc.:

• “A Managing Partner’s Checklist”;
• “Dealing with the ‘Leadership Vacuum’ in Law Firm Management”;
• “Training for Lawyer Management”;
• “The Will to Manage: Formulating a Plan to Succeed”;
• “Managing Partners Must Address the ‘State of the Firm’”; and
• “Defining the Role and Development of a New Managing Partner.”

Legal consultant Altman Weil Inc. resources:

• “Strategic Responses to Trends in the Legal Profession”; and
• “Works Well With Others: Building the Collaborative Law Firm”.

American Bar Association (ABA) Law Practice Management section books:

• Managing Partner 101: A Guide to Successful Law Firm Leadership, 2d Ed.; and
• Strengthening Your Firm: Basics for a Successful Law Firm (A Law Firm Partnership Guide).

See from Hildebrandt International:

• “Chain of Command: Management Principles for Managing Partners”; and
• “Coming of Age of the Managing Partner as CEO”.

Special Note: ALA members have free access to the ALA Reference Desk. Send questions on legal management to infocentral@alanet.org. Staff will conduct personal research on each question.

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