COMP NEWS – Law firms across the US had a very positive 3rd quarter. However, highly paid associates are taking a large chunk out of legal firms’ bottom lines.
The latest Thomson Reuters Peer Monitor Index, which tracks economic indicators at large and midsized law firms, found direct expenses grew more than 7% over the past 12 months, fueled largely by associate raises and bonuses.
This rise in expenses came mainly from associates gaining a year-over-year increase in base salaries on top of their lucrative end-of-year bonuses in an effort to keep and retain top associates and recruit new ones.
Many large firms increased starting associate salaries from $190,000 to $205,000 this summer and have doled out big bonuses in a bid to recruit and retain lawyers. Associate compensation is up nearly 10% year-over-year, according to Peer Monitor, which is part of the same parent company as Reuters.
There are no clear answers on if this will help law firms deal with turnover or recruiting problems that they may be experiencing in the long run, but it has not helped in the short run.
Higher pay hasn’t slowed attorney turnover. Nearly 14% of lawyers at the firms tracked by Peer Monitor left during the past 12 months, which is slightly higher turnover than the third quarter of 2019 — the last before the COVID-19 pandemic. Roughly 400 more lawyers left Peer Monitor Index firms in 2021 than is typical.
Higher salaries and high bonuses are an emphasis point for a very competitive labor market. With the great resignation happening around the country, competition for high-quality talent is expected to increase which is good for associate lawyers across the country. But, law firms are going to have to re-strategize how other compensation or benefits can be given out to their employees if they are struggling to keep up with the higher expected wages.
You can read more about the draw for talent in the legal field here.
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