Billable Hours and Associate Raises

As U.S. law firms in large cities have increased starting salaries for associates to $160,000 per year, one needs to ask whether this is a good thing.  In its February 29, 2008 edition, the ABA Journal - Law News Now reported on an article concluding that associate raises have lowered equity partner profits for some California law firms.  The chairman of one California law firm noted that clients paid for considerably less than half of recent associate raises, with partners paying the rest.  Of course, with profits-per-partner for many large law firms of over $1M or over $2M (as opposed to median cash compensation of $645,000 for general counsel in large corporations, all as reported by the ABA Journal - Law News Now), it is hard to feel too much sympathy for partners who are funding associate raises.

Although the ABA Journal - Law News Now edition does not address this issue, it seems clear that partners will be willing to have cuts in their profits up to a certain point.  Since they can only pass along a fraction of the cost of associate pay increases to clients in the form of higher billing rates, there comes a time where associates (and partners) will need to bill more hours to cover the increases.  In light of poor emotional health among many lawyers and widespread complaints about high billable hours already, further raises in billable hour requirements seem unwise for the overall health of the legal profession.

Of course, as the ABA Journal - Law News Now edition also reported, many law firms anticipate that 2008 will be a slower year.  Thus, it may be difficult to find enough work for some associates to increase the number of hours that they bill.  Associates, however, should be careful about wishing for higher starting salaries in law firms.