How Changing Lawyer Demographics Are Affecting Your Bottom Line

Suddenly, the legal market seems to be on fire. The competition for good talent has led to a marked rise in compensation. Led by Milbank, the new standard for associate compensation is a base of 190k + bonuses. The new standard for an attorney practicing for 7 years is $365k total compensation. This increase in associate compensation has continued to spread across the U.S. and is now seen in cities on both coasts and in Texas. Some boutique firms have gone “over the top” of this new standard and pay upwards of 200k or more for first year associates.

How this affects corporate law departments

Beyond the fact that firms will have to increase rates to pay for these raises, the total cost of your in-house legal department staff just went up as well. Here’s why:

·       Corporate law departments often recruit from big law firms. In order to capture and retain good talent, corporate law departments are going to have to offer competitive compensation. This is especially important as the in-house role is now viewed differently and an in-house lawyer may work as hard as firm lawyers. This makes it harder to rationalize accepting reduced compensation for an in-house role.

·       Staying competitive. In order to offer competitive compensation, the corporate law department may have to adjust the compensation of the rest of its department to avoid internal inequalities.

·       The whole market is impacted. It’s not just the big firms. As fewer lawyers are entering the employment ranks, the competition for talent is tight across all sectors. Insurance defense firms are having trouble keeping associates, especially diverse ones, because other firms are offering more money.

Why this is happening

While we were busy with the financial crisis and now a booming economy, major shifts in attorney demographics were occurring (and it appears few have been paying attention).   In 2007, the National Organization of Bar Counsel and the Association of Professional Responsibility Lawyers Joint Committee on Aging issued a report discussing the impending “Senior Tsunami.”    In 1980, the median age of practicing lawyer was 39. In 2014, the median age was 49.   As the population of lawyers aged, law school applications dropped precipitously. Not only that, but a higher percentage of lawyers graduating do not end up practicing law. 

To further explain what’s going on, let’s look at the data:

In the next few years, lawyers will be retiring at a dramatically greater rate than they are being replaced. By way of example, if all the lawyers who started practicing in 1980 retire the U.S. will lose around 100,000 lawyers. In addition, the extreme contractions in the employment market during the periods 2001-2003 (the internet bust) and 2008-2010 (the financial crisis) are now more impactful as the demand for top talent increases.

A recent article in the Texas Lawbook noted that there are not enough corporate lawyers in Texas to meet the demand of law firms moving here. This is true, but it goes beyond Texas and beyond corporate law. As the legal population ages, fewer attend law school, fewer still pass the bar, and many more leave the profession, the competition for talent is increasing and lawyer compensation is increasing. 

Corporate law departments need to plan accordingly.

Carrie Trabue is President of Carrington Legal Search, a retained executive legal search firm with a track record of long-term relationships and hires that stick. www.carringtonlegal.com  With nearly 20 years of experience in attorney search, Carrie is a trusted business partner; her clients range from Fortune 100 companies to venture funded startup companies.