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U.S. Law Firms Experience Robust Growth Amidst Bonus Season Anticipation
According to analysts at Wells Fargo, large U.S. law firms are heading into the year-end bonus season with an average revenue growth of nearly 5% in the third quarter. The increase is attributed to soaring lawyer billing rates, effectively offsetting expenses for many firms.
Solid Revenue Growth and Billing Rates Surge
Wells Fargo’s Legal Specialty Group data reveals a 4.6% growth in law firm revenue during the first nine months of 2023. Net income also saw a commendable rise of 2.7%. The driving force behind these gains is “some of the highest growth in billing rates we’ve seen,” with an overall increase of 7.9% for surveyed firms.
Expense Trends and Comparisons
Wells Fargo’s findings highlight a 5.6% growth in expenses during the first nine months of 2023, a notable decrease from the 12.8% growth observed in the same period in 2022.
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Selective Profitability: Top 50 Firms Lead the Way
While the overall landscape shows positive growth, only the top 50 U.S. law firms, as ranked by The American Lawyer, experienced a growth in net income. This metric, indicative of a firm’s profitability, provides insight into the varying financial performances across the legal sector.
Surrounding Year-End Bonuses
Associates eagerly await details on year-end bonuses, with New York law firm Milbank announcing increases in base pay. First-year associates at Milbank will witness a salary increase from $215,000 to $225,000, and eighth-year associates will see a scale topping out at $425,000.
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Industry-Wide Caution in Salary Adjustments
As associates await news on salary bumps and potential bonuses matching Milbank’s, no law firm has publicly committed to such adjustments. Typically, major law firms synchronize their salary scales in response to market shifts. However, Wells Fargo consultants note a hesitancy among firms to increase salaries, considering the unexpected nature of these expenses.
Challenges for Law Firms Beyond the Top 50
While highly profitable law firms can potentially match Milbank’s salary increases, others may find it challenging. Net income increased by 5.2% for the top 50 firms but slightly decreased for those ranked 51 through 100. Law firms in the 101-200 range experienced a 3.7% shrinkage in net income during the first nine months of 2023.
Unforeseen Expenses and Industry Dynamics
Wells Fargo consultants explain the reluctance to raise salaries, pointing out that such increases would extend not only to associates but also to counsel and non-equity partners. This unplanned expense contrasts with the firms’ raising rates to cover rising industry costs.
Potential Industry Impact and Firm Strategies
The legal industry closely watches whether other top firms will match or exceed Milbank’s salary scale. According to Stephanie Biderman of legal recruiting firm Major, Lindsey & Africa, many firms are currently in a holding pattern, monitoring the actions of their peers before making decisions on bonuses and salary adjustments.
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