Source: Reuters by David Thomas and Sara Merken
Large U.S. law firms are entering year-end bonus season after growing their revenues close to 5% on average through the third quarter, buoyed by fast-growing lawyer billing rates that have helped offset expenses, analysts at Wells Fargo said this week.
Law firm revenue grew by 4.6% during the first nine months of 2023, while net income grew by 2.7%, according to data from Wells Fargo’s Legal Specialty Group. Its survey of more than 120 firms included 65 of the 100 highest-grossing U.S. firms. The revenue increases were driven by “some of the highest growth in billing rates we’ve seen,” Wells Fargo said. Rates grew by 7.9% overall for the surveyed firms.
Expenses grew by 5.6% during the first nine months of 2023, Wells Fargo found, compared with 12.8% growth during the first nine months of 2022. A nine-month survey from Citigroup’s Citi Global Wealth at Work Law Firm Group had similar findings. Revenue for the nearly 200 law firms Citi surveyed grew by 4.8%, as did expenses.
First-year associates at Milbank will see their base pay jump from $215,000 to $225,000 under the firm’s new seniority-based salary scale, according to an internal memo viewed by Reuters. The scale for eighth-year associates will top out at $425,000.
So far, no law firm has publicly said they will match or exceed Milbank’s associate salary increases or year-end bonus, which ranges from a pro-rated $15,000 to $115,000, based on seniority. The country’s biggest law firms typically adjust their salary scales within days or weeks of one another to remain competitive.
The apparent reluctance to raise salaries is not surprising, Wells Fargo consultants said. Along with associates, any increases would extend to counsel and non-equity partners as well, said Owen Burman, a senior consultant at Wells Fargo’s Legal Specialty Group.
“It’s an unplanned expense they were not expecting,” Burman said. “They were raising rates to support all of the other costs that are increasing across the industry.”
Law firms 101 through 200 in the American Lawyer’s revenue rankings saw their net income shrink by 3.7% during the first nine months of 2023, according to Wells Fargo. “The Second Hundred really does not show any capacity to absorb any kind of additional cost pressure,” especially until they know they can collect outstanding client invoices, Burman said.
Read full article: https://www.reuters.com/legal/legalindustry/higher-billing-rates-drive-us-law-firm-growth-bonus-season-looms-2023-11-16/
