Longitudinal Changes in the Promotion to Partnership Tournament

The National Law Journal has a story discussing the disparity between associate and partner pay in large law firms.  See Leigh Jones, Pay: It's All Relative.  Until the recent starting salary bump to $160,000 per year, new associates were making 11.7% of the amount partners pulled in for 2005.  According to the story, this is the smallest percentage in the last 10 years.  Last week, the NLJ reporter called me up to ask for possible explanations for this pattern.

My initial reaction was changes in large law firm leverage.  Profits per partner are determined by dividing total firm profits by the number of equity partners.  Perhaps large law firms are relying more heavily on associates, staff attorneys, of counsel, and nonequity partners, thus spreading profits over a smaller pool of rainmaking partners.

The data largely corroborated my theory, but I was quite surprised by the magnitude of the trends.  The table below provides a quick snapshot.

Methodological notes: My sample is limited to firms listed on the NLJ 250 in 1995 and 2005.  The NLJ 250 is defined as the 250 largest firms based on the number of lawyers.  This list substantially overlaps  the Am Law 200, which is the 200 largest firms based on revenues.  I generated the change variables only from firms who provided the necessary data for both 1995 and 2005.   Between 1995 and 2005, the number of firms willing to provide a breakdown between equity and nonequity partners fell from 192 to 168.  So some of the change figures above are limited to 168 firms. 

This reticence in reporting partner breakdowns is a telling development, but first the major trend (after the jump).