- The Washington Times - Sunday, July 30, 2000

Part Three of Five

Law licenses can be a ticket to big money for the cream of the legal profession, where total annual receipts top $131 billion and are rising fast.
Among those riding highest on the boom: class-action lawyers, who strike it rich with multibillion-dollar contingency fees that pay a percentage of a big verdict. Not to mention partners in major law firms, who "eat what they kill" in the profession's blunt argot for those with a hot client list.
The nation's richest law firm Skadden, Arps, Slate, Meagher & Flom last year became the first ever to top $1 billion in revenues, exceeding that mark by $25 million, according to a survey published July 5 by the authoritative trade magazine, American Lawyer. The firm averaged $775,000 per lawyer, ranking it eighth in the nation by that measure.
Mike Rogan, managing partner of the District of Columbia office, concedes Skadden, Arps did well enough to be in the forefront of major pay boosts across the nation for staff lawyers who are not yet partners.
"Our philosophy is to be among the top-paying law firms," Mr. Rogan says.
The raises propelled first-year associates to $140,000 a year and an increasing scale for veterans, though that compensation doesn't quite match the $155,000 maximum, with bonuses, offered at a few firms further down the list.
"People thinking of coming to work at a top-notch law firm like ours feel and I agree with them that they're entitled to be paid well," Mr. Rogan says.
Maybe, but the chief justice of the United States warns that the Class of 2000 ought to be thinking as much about lifestyles and families as about those big bucks as they enter a profession with boundless choices.
"The large firm in the large city offers the benefit of a higher associate salary to start," Chief Justice William H. Rehnquist acknowledged May 28 when he told graduates of George Washington University Law School that those high-profile cases include plenty of midnight drudgery poring over documents.
"That work can be very tedious for those who are actually doing it, however profitable for the firm," he told the GWU law graduates, suggesting they look at smaller firms in smaller cities. "Here you will have more time for your family, for civic activities and hobbies, and will be able to feel more a part of the community in which you live."Please

'Not a healthy situation'

Lawyering for new graduates tireless enough to labor up to 2,400 "billable hours" a year (more than 46 hours a week charged to cases) has become extremely lucrative. From Day One, those hired by major firms get scads of extravagant perks and more money than the most experienced judges who decide the cases that the young lawyers work on.
"It does affect morale, without any question," says Senior Judge Nathaniel R. Jones of the 6th U.S. Circuit Court of Appeals.
"It's just not a healthy situation for judges seeing someone with a year or less experience appearing before them, knowing they make so much more money," the Cincinnati-based judge says in an interview with The Washington Times.
For 10 years before President Carter put him on the bench in 1979, the appeals court veteran was a revered civil rights lawyer and a successor to Thurgood Marshall as NAACP general counsel.
Now mainstream law firms routinely offer $155,000 a year, including maximum bonuses, to youngsters just arrived from law school. Head-hunters offer lots more when they raid competitors' staffs.
Meanwhile, federal trial judges only recently won a six-year battle for a raise to $141,347.
After 21 years in the robes of an appellate judge, a recent cost-of-living raise gave Judge Jones an annual salary of $149,930. That's only about $95 a week more than the pay of newcomers to the law who are so green they work at the office and can't yet go to court.
Chief Justice Rehnquist is a longtime griper about stingy pay scales for the federal judiciary he heads. The 28-year Supreme Court veteran makes $181,400 a year $63,600 less than non-partners with five years' experience can earn at such law firms as San Francisco-based Brobeck, Phleger & Harrison.
With base salary of $125,000 and bonuses up to $30,000 for billing 2,400 hours, a first-year "Brobecker" can gross $155,000. Those who survive the exhaustion and estrangement from family earn $245,000 after five years' experience if they put in a grueling 2,400 billable hours per year.

Quantity and quality

"We want our people not to work longer hours, but if they do work longer hours we want to pay them for the effort and sacrifice," Brobeck Chairman Tower C. Snow Jr. says.
In an interview, Mr. Snow says the workload at his firm of 700 lawyers and others serving high-tech industries was driven last year by a "white-hot public offering market" as dot-com clients went public by selling stock.
"Even though more work can translate to more income for the firm, it would be bad business for us to get people to work such extraordinary hours they would leave us," he says. "It costs us $200,000 out of pocket every time a lawyer leaves our law firm."
Mr. Snow, perhaps diplomatically, doesn't mention that much of the raiding of talent from his firm is done by clients. After his interview with The Times, the firm notified new clients in May that it would charge 25 percent of a year's salary for anyone they hired away. The firm initiated discussions with existing clients about the policy.
Like many firms, the Boston law office of Hale and Dorr tells much the same story and offers identical bonuses for those who put in 12-hour days six days a week. But Hale and Dorr adds a caveat.
"While productivity will be a component in determining the size of an individual associate's bonus, the firm also considers other contributions to the firm such as quality of work," Hale and Dorr tells applicants.
William G. Paul of Oklahoma City, president of the American Bar Association, says he doesn't share judges' concerns for a marketplace response to the high cost of living.
Asked about public reaction to soaring pay scales in an interview with The Times, Mr. Paul says compensation for lawyers is not a subject the ABA should address. Two weeks later, the national organization announced it had set up a "career service" to alert members to job openings and salary trends.
"Law firms do what they think is in their best interests," Mr. Paul says.

Tale of the tax returns

Insiders know the pay elsewhere can be closer to the poverty line. That was the situation for James M. Diehl, a veteran of the Prince George's County (Md.) Courthouse.
Mr. Diehl, 55, of Upper Marlboro, buffed his conversational skills four evenings a week while working a checkout line at the Watkins Park Safeway after a day practicing family law and accepting criminal cases assigned by the court.
"I was making enough in my law practice and my part-time job at Safeway to make it. I got a good cash flow in Safeway and I enjoyed my relationships there," he says in an interview shortly after he decided to put aside the law entirely and use his engineering degree in a computer job.
The reported revenue of 392,345 of the nation's law firms totaled $131 billion for 1997, the latest tax year for which Internal Revenue Service data are available. That amounted to well over half the U.S. defense budget and far more than the total gross national product for all goods and services produced that year by the nation of Denmark.
But 83,772, or 21.4 percent, of the U.S. law offices filing tax returns reported they didn't earn the first dollar of profit on their share of receipts, which totaled $18.3 billion.
The other 308,573 tax returns were from firms with pre-tax profit of $37.3 billion from gross receipts of $111.45 billion. The profit alone is about what it costs the nation of Bulgaria to get through a year from food to cars and military forces.
The Times calculated that overall sales of legal services in the nation totals $131 billion a year. Some lawyers say they never before had seen such a figure.
With jumps of 10 percent to 20 percent a year, the total is sure to approach $175 billion this year. That surge in income is likely to continue, based on last year's trend toward verdicts awarding bigger amounts. National Law Journal counted at least 10 awards over the $100 million mark and two in the billions.
The biggest verdict so far in a product liability case that wasn't a class action, $4.9 billion, was handed down last summer in California. A jury held General Motors responsible for non-fatal burns in a two-car wreck caused by a drunken driver who wasn't even sued. The judge cut the award as excessive to $1.2 billion.

Adding it all up

Tabulations by The Times indicate 1997 revenues went to firms employing an estimated 835,000 lawyers out of some 1.2 million nationwide.
Those other lawyers include some 300,000 or more staff counsel at companies that are not law firms; countless judges and government lawyers; faculty at law schools; a growing number of lawyers working at non-law jobs and entrepreneurs in other professions.
"For years, the number of lawyers in private practice has hovered at 70 percent of the profession," says Nancy Slonim, spokeswoman for the American Bar Association.
Even the IRS says it cannot calculate how much lawyers as a group reap annually in personal earnings. The IRS does not provide data on individual earnings for any occupation except farming, which is politically sensitive.
Ten years ago, Census Bureau data tallied a national population of 738,861 lawyers, 80 percent of whom worked full time. They claimed combined annual earnings for 1989 of $57.6 billion, including outside income as well as salaries and bonuses. More than 536,000 additional lawyers have been admitted to the bar since then.
For the 1997 tax year, law partnerships filed 8 percent of all returns but dominated the field by collecting 46 percent of the revenue and 62 percent of pre-tax profit.
Those 30,569 partnerships comprise 146,430 partners, returns show. There is no tally for associates employed at those partnerships, but the average runs about three associates per partner. Total salaries for the year were almost $16 billion, plus $2.4 billion in guaranteed bonuses for partners.
Skadden, Arps now has 1,322 lawyers of whom 292 are partners with average profits last year at a staggering $1.6 million for each partner.
The firm ranked second in overall revenues before salaries and other expenses is Baker & McKenzie, with 2,477 lawyers of whom 558 are partners, according to the "AmLaw 100" ranking by American Lawyer.

Benefits and perks

When a few Silicon Valley firms started the salary revolution in January by boosting pay, they sparked a feeding frenzy at big law factories coast to coast. Their associates demanded matching pay scales.
Also sent into orbit was a benefits system that includes weekend family retreats and concierges to handle personal errands.
Many law firms offer financial help for continuing education and provide domestic-partner benefits. Less routine perks include child care, casual dress all week long, Starbucks coffee service, discount passes to movies and sports, a room for new mothers to nurse infants, keg parties and use of company-owned condominiums in the Caribbean.
"It's unbelievable what they're getting with no experience at all," according to Jill Morganbesser, who is vice president of Bethesda, Md.-based www.Infirmation.com, which tracks salaries and other inside, job-related information on law firms.
The salary jumps at the Silicon Valley firms spurred what the San Francisco Recorder called national hysteria. They instantly became topics A through Z on two heavily trafficked Internet Web sites both titled "Greedy Associates" and devoted almost entirely to gossip about pay, bonuses and working conditions.
The "greedy associates" movement was so novel and powerful this year that the National Law Journal on June 5 gave it a collective slot among its "100 most influential lawyers." (The competing "Greedy Associates" Web site addresses can be located at www.greedyassociates.com and http://clubs.yahoo.com/clubs/greedyassociates.)
Rumor runs rampant on both sites, generally spread by lawyers hoping the buzz will spur governing partners to share the wealth.
"Either the partners in that firm who bring in the business have to take a pay cut or the rates to clients are going to go up," says a senior partner at one of the District's more traditional firms.
The dilemma is caused by soaring costs of living that match rocketing stock prices in Silicon Valley, the senior partner says.
"If the whole dot-com field takes a crash, it would change things enormously," observes the partner, who asked not to be identified.

Starting pay varies

Unexpectedly, the raises quickly spread to places like Austin, Texas, where the cost of living is far cheaper than San Jose, Calif., as well as to New York and the District.
Some say top law firms easily can afford higher salaries since the nation's 100 busiest firms took in $26.6 billion last year, up 15 percent, according to the American Lawyer survey.
Skadden, Arps topped that list at $1.025 billion in total receipts for the year, almost double its $517 million gross in 1989. In the same decade its staff of lawyers rose 40 percent, from 948 to 1,322.
Under the firm's policy, Mr. Rogan would not discuss sales or earnings figures, even to challenge them, although he openly discusses salary levels and pay raises.
At lower levels, reports the National Association for Law Placement, half of all first-year lawyers from the Class of '97 got $72,500 or better at a time when starting pay ranged from $47,000 in small firms up to $110,000 at those with more than 250 lawyers.
At the same time, public defenders in Cheyenne, Wyo., started at $29,220 a year and general counsels of key federal agencies got $125,000, according to the National Law Journal.
Public interest groups offered beginners $30,000 to $40,000; the top staff salary was $170,000 at the NAACP Legal Defense Fund and $77,250 at the American Civil Liberties Union.
The attorney general of Arkansas made $55,839; by contrast, New York's attorney general got $151,500.

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Part I: Modern-day jousters continue to battle for respect

Part II: 'Jackpot justice' gets best defense

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