Wall Street may be home to bankers, but it's the lawyers who have seen the biggest compensation growth over the last two decades. A recent Wall Street Journal article analyzed pay patterns for bankers and financial lawyers, and while bankers have historically made significantly more than lawyers, the data shows a reversal in this trend.
Since the financial crisis in 2008, bankers’ pay has remained fairly stagnant among all but the highest performers. Managing Directors at banks, who do not hold company leadership positions, average between $1 and $2 million in annual compensation including their bonuses, which are typically paid in stock. This average has held steady for about 20 years, without adjusting for inflation.
The opposite is true among lawyers. Equity partners at top law firms are earning about $3 million annually. This is about three times higher than the reported earnings 20 years ago. And, among the most productive partners, the upside is even higher. Partners at some firms, including at Wachtell, Lipton, Rosen & Katz and Kirkland & Ellis, are earning more than $15 million per year. Mark Rosen, an experienced legal recruiter, described his observations to the WSJ. “Things have changed. Lawyer compensation has grown unbelievably,” he said.
According to the WSJ the reasons for this change are multi-faceted. There are regulatory pressures at financial institutions as well as an industry trend of downplaying individuals in favor of the bank’s brand name. The private equity market has also grown, expanding the client base for law firms and growing their business.
The role of a lawyer on Wall Street has also changed. Once relegated to contract review, the lawyers now look more like “quasibankers,” taking on outsized advisory roles with clients. They now partner with banks on everything from regulatory matters to succession planning.
Within the law firm, there have also been shifts. Firms have adjusted compensation models to reward productivity over seniority. The new productivity-based view on compensation has even resulted in “bidding wars” for talented lawyers, further driving up compensation.
Lastly, while banking fees have remained relatively consistent over time, law firms raise their fees annually, and at a rate over inflation.