The ABA Journal reports that lawyer salaries in the United States have fallen behind those of other professions.
It does not have to be that way.
In her on-line article "Lawyers' salaries slipping compared to other professions, data indicates," Stephanie Francis Ward reports that the median salaries of information systems managers, pharmacists, and nurse anesthetists are now higher than that of lawyers, according to data from the U.S. Bureau of Labor Statistics. The current median salary for lawyers in the United States is $118,160; but, after adjusting for inflation, that figure is a 2.9% reduction from 2006.
This data pertains only to salaried lawyers, and excludes equity partners of law firms and solo practitioners. Although law firms are correct to focus attention on their partner compensation systems, as drivers of partner performance, these findings at the "lower end" of the legal profession point to a growing compensation crisis that many firms have overlooked. While equity partners continue to do reasonably well, even in some small firms, their firms are becoming increasingly vulnerable to losing many of their best associates, almost all of whom are salaried employees. This vulnerability -- not increased competition from bigger firms or globalization of previously local legal markets -- could be the one of the biggest threats to the survival of many small law firms in the United States.
This is a dramatic headline, but it is not news. We have observed something of a stagnation in non-owner compensation in law firms and corporate law departments in the United States at least since the Great Recession. Although salaries in large firms and corporate law departments appear to have kept up, there seems to have been little improvement in most small law firms, where associates and even some non-equity partners are working now for, at best, very little more than their counterparts did ten years ago.
The phenomenon of most salaried lawyers getting relatively poorer in the United States is not due to a weak economy, not does it reflect a devaluing of the associate's worth to the firm. Equity partners know that they cannot expect to keep good associates and non-equity partners in their firms -- especially in small firms -- if these lawyers are treated like inmates in a Dickensian workhouse.
Instead, we believe that the principal factors contributing to the "poorer lawyers" phenomenon have been the stagnant productivity of fee earners and the declining profitability of their firms. This has been aggravated by what we see as profound weaknesses in the way that many law firms manage lawyer performance and professional development, or, in some instances, fail to manage these at all.
Small law firms, especially, find it harder than ever to reconcile the increased price sensitivity of clients and traditional practice-management methods to produce the profits needed to fund better compensation for associates, especially. It's not that the owners of many small firms don't want to pay their associates better; many of them simply cannot afford to do so.
This is probably the biggest survival challenge for most small law firms, both today and over the next ten years, not only in the United States, but in other mature or emerging legal markets worldwide.
Norman Clark
Walker Clark offers a range of management services and advice specifically designed to build sustainable profitability even the smallest, most profitability-challenged, law firms. Click here to learn more.