Rosy Outlook; Relative Performance Measures; Underwriting Laterals
Rosy Outlook
Law firms are on track to produce "one of the strongest years we see," according to Gretta Rusanow, head of advisory services for Citi's Law Firm Group (Law Firms Could Post 'One of the Strongest Years We See', Andrew Maloney, 8/19/24, American Lawyer). Citi's recent report analyzed the first 6 months of 2024, relative to the same period in 2023, and found demand and productivity growth of 2.9% and 2.1% respectively and double-digit revenue growth (11.4%). Citi's report comes on the heels of Thomson Reuters' Law Firm Financial Index released last month, which also noted that "law firms look stronger than ever" (Law Firm Financial Index Q2 2024 Executive Report 8/5/24).
Relative Performance Measure
Thomson Reuters introduced its Relative Performance Measure (RPM), a new metric for measuring lawyer and law firm productivity, which correlates more closely with profitability than the billable hour alone (Relative Performance Measures Report, Thomson Reuters, Aug. 2024). The RPM factors rates and realization into its productivity assessment, which many firms are already doing. The RPM's real value will likely lie in the benchmarks that Thomson Reuters will be able to provide to the firms who submit their data. Firms will be able to compare the productivity of an M&A associate at an AmLaw 100 firm in Boston, for example, against an average RPM for similarly situated associates. Firms will also be able to assess practice group, office, and entire firm productivity against peer firms, as in the example below.
Underwriting Lateral Hires
A recent American Lawyer article highlighted dissatisfaction among non-equity partners over outsized comp packages for lateral hires; non-equity partners as a class are highly profitable, and some believe that their contributions to the profit pool are subsidizing lateral comp packages at the expense of internal promotions and comp increases ('Underwriting' Laterals Stokes Tension Among Nonequity Partners, Andrew Maloney, 8/19/24, American Lawyer). Although the article focuses on the dissatisfaction of non-equity partners, I have found equity partners to be similarly frustrated by the premium some lateral partners receive, especially in new markets. While some comp packages may go too far, firms usually must offer a premium to attract sought-after lateral partner candidates, since those partners are typically well-compensated and valued at their current firm.
