US firms' rapidly rising wage bills are hitting their profitability, according to a survey released this week, as firms across the country launch a new bonus campaign.
The survey by US banking giant Citibank's private bank group reveals that although US law firm revenues rose by 18% in June 1999-June 2000, expenses went up by 24% in the same period.
The survey looked at a sample of 16 major US law firms in the 300-lawyer-plus range.
The high rates of associate pay in the US are specifically blamed as a cause for this overspending in comparison to revenue growth.
In the last month a large number of US firms, as well as Clifford Chance, have agreed to give their first year US associates a $40,000 (£27,972) bonus, on top of recently raised salaries that reach up to $125,000 (£87,412). Industry insiders were quick to warn about the dangers of high associate wages, but this is some of the first proof that the pay war is finally hitting the bottom line. Another cause of higher spending was retirement payments for partners. Citibank predicts that this will continue to rise due to the high number of lawyers in their sixties. The news that US firms' costs are rising faster than revenues may be welcomed by partners in the top City firms, which for years have been trying to bridge the gap between US and UK firm profits.
Research by American Lawyer shows that the gap in profits between US and UK firms for profits is diminishing every year.
The figures also show that the leading UK firms at least equal US firms in terms of revenue, while City pay rates show assistants are lower paid in the UK than in the US.