Legal News

Runaway Associate Salaries Denting Profits-Per-Partner

By Dan Slater

Talk about a hot-button topic: Who underwrites associate salary bumps? The firms, or their clients?

It’s the question grappled with today in an item from The Recorder. Guy Halgren, the chairman of Sheppard, Mullin, Richter & Hampton, said: “The fact is that we only passed on much less than half of the associate salary increases onto the clients, and the partners have absorbed more. The partners made less money.”

At least in California, that seems to be the crie du coeur coming from equity partners who’ve watched helplessly as two associate raises — both coming in a 12-month period in 2006 and 2007 — eat into their year-end take. This year, however, the firms haven’t bumped upwards — at least not yet; a development likely connected, at least in part, to the rather grim forecast for the year.

Gibson Dunn’s managing partner, Kenneth Doran, told The Recorder that when $25,000 raises “ripple up the associate scale” it shrinks net income, thereby shrinking PPP, or profits-per-partner. (Here, we cue the Law Blog violins.)

While the article cites sources who predict that the economic climate will help stabilize the upward trend in associate pay, nothing’s for sure. “Who knows?” said O’Melveny chairman Arthur Culvahouse Jr. “There may be a firm out there having a great year that decides to give itself a recruiting edge. And then we could be off and running again.”

Full post as published by Law Blog - WSJ.com on February 27, 2008 (boomark / email).