Law Firm Compensation Survey: Recent Results Released
by Steve Cleland
(County Bar Update, December 2003, Vol. 23, No. 11)

Law Firm Compensation Survey: Recent Results Released

By Steve Cleland, CPA, at the request of the Law Practice Management Section Executive Committee. Cleland is a principal in the Law Firm Services Group at RBZ. He specializes in financial and management consulting to law firms, including partner compensation, profit improvement studies, budgeting, operational reviews, internal control reviews, partner retreats, and turn-around consulting. In addition, Cleland is a fraud/embezzlement expert and has written several articles and lectured on prevention in law firms. The opinions expressed are his own.

The results are in for the 2003 RBZ Law Firm Compensation Survey for Southern California. RBZ surveyed more than 6,500 attorneys and more than 7,500 non-attorney staff in firms in Orange County, the South Bay, downtown Los Angeles, Century City, the San Fernando Valley, and all points in between. Based on figures as of July 1, 2003, key information includes the following:

Partner Compensation — Total average partner compensation for all firms has continued to increase for the third year in a row to $393,798, an increase of 1.9% over 2002. The third quartile rose 7% from $466,029 to $498,667. The gap between larger firms (75 or more attorneys) and small firms (8-15 attorneys) decreased for the third year in a row as small firms increased an amazing 13.3% while larger firms decreased by 8.3%. There were also some interesting trends by practice area: bankruptcy has been rising for the past four years and is up 38% over 2002, litigation has remained relatively stable for three years with a slight increase of 1.2%, and insurance defense continued its cyclical trend with a 24.4% decrease this year after a 23.0% increase the previous year. Even though partner compensation continues to rise, it is becoming more and more difficult to reach these numbers.

Hours — The average number of billable hours for partners (approximately 1,800 hours) and associates (approximately 1,820 hours) has been relatively constant for the past five years.

Billing Rates — Average billing rates increased for the fifth year in a row, albeit slightly in 2003 (1.4%). The average rate for all firms is $353, and the third quartile is $420. Larger firms slightly decreased from $408 to $400, and small firms went from $322 to $312.

Employee Costs — In addition to the above challenges to the bottom line, insurance costs have skyrocketed over the past few years, and employee compensation has been on the rise as follows:
Associates: Average base compensation for all associates at all firms has increased each of the last five years to its current level of $132,538. Second-year associates increased 1.3% to $110,038 whereas 10-year associates increased sizably from $130,476 to $151,504 (16.1%). Associates at larger firms ($147,049) earn more than a 30% premium over their counterparts at smaller firms ($108,614), and those in Century City and Beverly Hills are the highest paid at $145,078, with the lowest in the South Bay at just under $100,000. By practice area, associates working in entertainment ($186,000) or corporate/tax/real estate ($150,934) earn the most, and insurance defense and workers’ compensation associates earn the least at approximately $89,000.
Secretaries: Mid-Level Secretary (6-10 years) — Total compensation for all firms increased an average of 4.4% to $56,095. Century City, Beverly Hills, and downtown Los Angeles mid-level secretaries were the highest paid at approximately $58,500 (up from $56,100 in 2002), with the lowest in the Pasadena, Burbank, Glendale, and San Fernando Valley at $49,800 (from $48,100).
Paralegals: Mid-Level Paralegals (6-10 years) — Average total compensation increased 3.7% in 2003 to $55,710. Transactional paralegals were the highest paid at an average of $58,939, approximately $6,000 more than insurance defense. Again, firms in Century City, Beverly Hills, and downtown Los Angeles paid a premium at $57,500 over Pasadena, Burbank, Glendale, and the San Fernando Valley at $46,500.

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