January 18, 2019

Is the Pay Gap in Public Accounting Firms Widening?

American Lawyer has an interesting story about the growing pay gap in law, meaning a small handful of top guys are bringing in $10 million or more, while the low level grunts at the associate level are bringing home a paltry $160,000, on average. Let’s take a look:

American Lawyer has an interesting story about the growing pay gap in law, meaning a small handful of top guys are bringing in $10 million or more, while the low level grunts at the associate level are bringing home a paltry $160,000, on average. Let's take a look:

More top partners at Am Law 100 firms are bringing home $10 million a year, and the gap between them and everyone else employed in Big Law is widening.

As some firms enjoy breakaway success and as many are trying to prevent their stars from joining today's robust lateral market, firms are bestowing the biggest pay boosts on those top-decile partners who really bring in the business.

That means a growing gap even among equity partners. Moreover, as firms try to cut costs, salaries at the middle and bottom, including those of associates and administrative and support staff, are standing still or even losing ground (although associates received big bonuses this year). That's according to our latest look at law firm salaries, for which we used in-house and external data coupled with dozens of interviews with legal recruiters, consultants and other experts.

To those of you clinging desperately to your $55k offer letter and considering the partner track before you even send your first confirmation, $10 million seems like a ridiculous amount of money. And it is. But if you put this in terms of the average associate pay, it's even more ridiculous.

According to the article, part of the problem is culture. Lawyers at the highest firm level, like their public accounting cohorts, want to see the most money from clients for the smallest amount of real cost possible. This means outsourcing administrative and technical support, and contract lawyers in markets where talent comes a lot cheaper, like Nashville.

"My problem with all these trends is that they're fixated on the short-term profits that can be returned to equity partners at the earliest opportunity, rather than on a longer-term vision of creating a sustainable, multi-generational firm whose next cohort of leaders is in active development," says Jordan Furlong, a legal consultant in Ottawa, Canada with Edge International. "Many such law firms are like baseball teams that spend all their money on established free-agent stars while neglecting the farm system and the development of their minor-leaguers. They might win a pennant this year, but they're setting themselves up for many last-place finishes for years afterwards."

The model probably sounds quite familiar to you — commoditizing ervices, billing by the hour, high utilization rates, awful performance review processes, etc.

"There is increased stratification within the legal community on compensation," says Steven Slutsky, an executive compensation and human resources consultant at PricewaterhouseCoopers LLC who consults on law firm compensation. He was an associate at Jackson Lewis in New York City earlier in his career. "One (driver) has been the increased focus on the business of law as opposed to the profession of law. Law is following the trends that we see in almost every other business."

You'll recall the projection of what you can expect to make at a Big 4 firm over a 15 year period that some nerd with too much time on his hands came up with a few years ago. It put senior partners at about $450,000 and first year associates at $50,000. See where we're going with this?

The American Lawyer piece states associate pay hasn't moved an inch since 2007, meaning the average of $160,000 is actually a decrease of 14.5 percent when adjusted for inflation since then, yet the firm rainmakers — as few as they might be in number — are making more money than ever.

There's also the issue of equity versus non-equity partners, which the article points out.

More senior-level lawyers are nonequity partners and counsels. As the opportunity to advance at many firms increasingly depends on the ability to keep clients and generate new ones, some management experts see the nonequity partner group as being among the most vulnerable in Big Law because many of them don't have their own book of business.

We've seen this in public accounting, as well.

We know a gap exists. We also know the public accounting business model is broken. And we also know that associates work for the partners, not the other way around. So just how bad is the gap? Is it as bad as the American Lawyer hit piece would like us to believe?

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