Will Associate Pay Hikes Cut into Profit Per Partner Ratios?

The article below from the ABA Journal begs the question whether law firms will be able to raise rates to accomodate for steep pay hikes for associates at law firms.

Who Will Pay for Associate Raises: Partners or Clients?
Firms are scrambling to match the new NYC going rate

By Stephanie Francis Ward

If Simpson Thacher & Bartlett raises its billing rates to fund its associate pay hikes announced last week, it’s unlikely clients will push back too hard, given the New York City-based firm’s stellar reputation.

But for other law firms, many of which aren’t headquartered in New York and rarely make the top 10 in profits-per-partner lists, matching the pay may not be prudent, some observers say. They wonder where the money will come from for their associate salary increases, which for the most part average $15,000 a year, excluding bonuses.

It may be too late for caution. After Simpson Thacher announced Jan. 22 that it was raising first-year salaries to $160,000, five other large firms with New York offices matched the money by Jan. 23. A day later, 10 more firms followed suit. By midday Thursday, it was reported that 41 law firms, some of which are not headquartered in New York but have offices there, announced they also would raise starting associate salaries in New York from $145,000 to $160,000 a year, with additional raises for the other associate classes. (See a timeline on salary raises.)

ABA Journal eReport