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(Reuters) - Law firms can’t win the talent war with money alone.
They must find other ways alongside competitive pay to make lawyers feel invested in their firms so they stay put, according the latest annual legal market report from the Thomson Reuters Institute and Georgetown Law’s Center on Ethics and the Legal Profession.
“Reinventing how the law firm works is going to be the critical task of every law firm leader this year,” said report co-author James Jones, a senior fellow at the Georgetown Law Center.
The report is based on data reported by 171 large and midsized U.S. law firms. The Thomson Reuters Institute shares the same parent company as Reuters.
The past year was a busy and lucrative one for law firms, with demand and billing rates both up 4% from 2020 and double-digit growth in profits per equity partner across all law firm segments, according to the report, released Tuesday.
But looming over those indicators is data showing law firms are spending more money than ever on associate compensation, only to see record turnover. As of November, 23% of associates had left their firms during the past year, the researchers found. That’s despite multiple rounds of bonuses throughout the year, and widely adopted increases in associate salaries at large law firms.
Associate compensation in November was up 11% over the previous 12-month period for all surveyed firms, and up more than 15% among the 100 most profitable firms, Tuesday's report found. Those increases have contributed to a nearly 9% jump in direct expenses for firms, the report said.
“In response to the fierce competition for talent, firms are spending huge amounts of money and putting their profits at increasing risk for fairly modest returns — at least if you consider the real costs of high levels of lawyer turnover,” the authors wrote.
Law firm leaders hoping to limit turnover need to rethink their structure and operations to allow greater flexibility and better work/life balance, according to the report. That means creating fair and equitable remote work policies, providing mental health support, giving lawyers more pro bono opportunities and making their physical offices more inviting, it said.
“Firms need to realize that it’s not just going to be about money,” said Bill Josten, manager of strategic enterprise in thought leadership for the Thomson Reuters Institute. “In fact, it’s not primarily going to be about money. There are going to be shifts in attorney workflows like we’ve never seen before.”
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