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Cravath’s announcement that the firm would raise associate salaries has dominated water cooler talk around the legal industry for the past two months. The list of firms that immediately followed Cravath’s lead and those that didn’t was closely scrutinized. Any firms that delayed announcing salary increases were subjected to conjecture and scorn, with open questions asked about the health of the firm and its commitment to associates. In the end, nearly every Am Law 50 firm fell into line and accepted Cravath’s new salary structure, or a slightly modified version of it, as its own.

An analysis using ALM Intelligence’s Am Law 200 and RivalEdge databases reveals that the salary increases announced over the past two months will have drastically different impacts on the finances of different firms. As seen in the table below, some firms will walk away with relatively limited impacts on their financial model, while others will see significant decreases in profitability if they are not capable of passing on cost increases to their clients. (See the methodology section at the end of this brief for more detail on how the estimates were calculated.)

Graph 1

As seen in the table above, there is almost no correlation between current profitability, measured in profit per equity partner (PPP), and the impact of associate salary increases. The firms that are most at risk, as shown in the analysis below, are those with higher leverage and lower margins.

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Nicholas Bruch, Director, ALM Intelligence

Nicholas is a Director at ALM Legal Intelligence. He is ALM’s principle analyst for the legal market and is the Director of the ALM Intelligence Fellows Program. Nick’s research on the legal market is regularly featured in The American Lawyer and other industry leading media outlets. Nick also speaks extensively on the legal market, keynoting major industry events and speaking at partner retreats for large and mid-sized law firms. Prior to joining ALM Legal Intelligence, Nick was part of Huron Consulting’s Law Firm Strategy Practice in the firm’s New York and London offices. Nicholas’s experience includes advising law firms and law department in developing and developed markets on issues related to strategy, business development, market intelligence, and operations. Nick holds a Masters of International Business from the Fletcher School at Tufts University and a BA in Economics and Philosophy from DePaul University.

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