Balancing Associate Attorney Pay for Sustainable Growth

Balancing Associate Attorney Pay for Sustainable Growth

According to an article by Kirk Stange of Stange Law Firm, determining associate attorney pay remains a persistent challenge, and firms often split into two camps: those that overpay to attract talent and those that underpay and struggle to hire strong candidates.

Stange explains that overpaying can cause owners to absorb losses or fail to meet core obligations, potentially destabilizing the entire business. Conversely, paying too little makes talent acquisition difficult, even when salary surveys suggest a range. While baseline compensation data is useful, it does not override a firm’s budget realities, collections experience, or practice-specific economics.

Stange describes the longstanding “rule of thirds,” in which roughly one-third of revenue supports associate compensation, one-third covers overhead, and one-third becomes profit. Under this framework, revenue generation, not billed hours, determines compensation. 

For example, an associate billing $300,000 but collecting $200,000 would fall into the lower salary bracket because only collected revenue matters. Rising healthcare costs, practice-specific expenses, and marketing add further complexity to the formula, especially when the firm, not the associate, supplies all business.

Stange also discusses an emerging perspective that pegs base pay closer to 20 percent of revenue generated, driven by economic pressures and inflationary factors. While associates may prefer guaranteed salaries, Stange observes that incentive structures, such as discretionary bonuses, origination rewards, or profit-based formulas, help align performance with financial goals.

Managing partners should track revenue production, overhead, and collection rates when setting associate pay. Benchmark ranges provide direction, but disciplined compensation tied to financial metrics helps firms avoid overextension and sustain long-term viability.