Step With Me Through the Looking Glass to 1983

In doing some research about large law firm dissolutions (Brobeck, Coudert, Finley Kumble, Shea & Gould, etc.), I came across a November 15, 1983 article from The New York Times archives entitled "Business and the Law: Fall in Income at Big Firms." Join me in a brief time-warp tour through the looking glass.

The article stems from the release—or, actually, leak—of "the recently distributed Price Waterhouse study of law firm finances." According to the study, "the average partnership share at the 21 biggest New York firms that participated in the study - firms with 150 or more lawyers - was $232,110 in 1982, down 4.5 percent from $242,940 the previous year. Adjusted for inflation, the income per partner at those firms has dropped 11.6 percent since 1978."

To put those dollars in today's perspective, I ran over to the Fed's CPI Calculator and came back with the information that $1.00 in 1983 corresponds to $2.06 in 2007. Let's re-run the numbers:

First, let's try to produce today's list of New York's "21 biggest" firms. Since the article is evidently doing it by lawyer headcount, I took the most recent National Law Journal 250 (ranking firms by headcount as opposed to revenue, as the AmLaw 200 are ranked), sorted on "Headquarters City" (a self-reported datum), and came up with this, where the first column is the firm's NLJ 250 rank and the last column is their reported lawyer headcounts:

Whereas the cutoff was "150 lawyers," now the cutoff is 525. And some notables miss the cut—including Cravath, Cahill Gordon, Wachtell, and Schulte Roth.

But of course the real sex appeal lies in the partner income numbers. "Outside New York," according to the P-W study, "median net income per partner is $143,000"—or barely $300,000 in today's dollars. The New Yorkers, then as now, were outperforming, but using our CPI adjustment only gets them to an average of $478,000/year. And there's more:

"Another sign that the biggest law firms are getting squeezed financially is that they are borrowing more money. According to the Price Waterhouse survey, average debt per partner at the big New York firms was $18,000 in 1982, up more than $7,000 from the previous year.

"Then too, there is a decline of about 1 percent in the number of billable hours. At the big New York firms that took part in the study, the average partner was billing 1,530 hours a year, while the average associate managed 1,767 hours."

"The survey may offer a good overall picture of the finances of legal practice, but a memo leaked by one of the partners at Shea & Gould gives a more intimate look at how one firm split the partnership pie in their 1982 fiscal year.

"While William A. Shea and Milton Gould, the two politically well-connected name partners, received $646,000 each, 14 of their partners got less than $100,000 - and the newest partners, Harvey Feldschrieber, James E. Frankel and Mark L. Friedman, got only $55,000. [...]

"After Mr. Shea and Mr. Gould, the five [executive] committee members are the highest paid. Bruce Hecker, Bernard Ruggieri, Martin Shelton and Allan Tessler got $415,000 last year, and the fifth member, Thomas Constance, $410,000."

You can do the CPI calculation for yourself, and compare the short-sticked partners to today's starting associate salaries, but before returning to the 21st Century with you I want to point out an interesting ratio: First-year associate salaries in 1982 were just shy of $40,000, meaning Shea & Gould's executive committee members earned about 10x what a first-year did. I would be very surprised to learn today that any of the 21 firms listed above have executive committee members making "only" 10x what a first-year in 2007 makes. If CEO compensation in corporate-land has outstripped proportionate growth in middle management compensation since the 1980's, perhaps our industry is following the same path.

On the other hand, associates have enjoyed a real, inflation-adjusted doubling of their salaries, so maybe we are making progress after all.

But then, there's always Wachtell. The article concludes thus:

"If those numbers sound good, consider Wachtell, Lipton, Rosen & Katz, where even the junior partners earn $450,000 and senior partners like Martin Lipton, the takeover specialist who has made the firm's fortune, get more than $1 million a year. Wachtell, Lipton lawyers work hard for that money, though, averaging about 2,500 billable hours a year."