The Partner-Associate Ratio: Income, Supervision, Strategy

The number of associates per partner varies a lot between law firms. While some law firms have more partners than associates, others employ 15 or even more associates per (equity) partner. And while this may have a positive impact on your bank account, it might not be what you want.

Key words: Leverage, Partners, Associates, P/A-Ratio

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P/A Ratio, Leverage or Gearing

The P/A Ratio, or sometimes called leverage or gearing is the ratio of how many associates work in a law firm compared to the number of partners. Or to be more exact: how many professionals who are not equity partners (junior associates, senior associates, salary partners etc.) in comparison to the number of equity partners (the term P/A Ratio is therefore slightly confusing as from a more technical standpoint it should be called the A/P Ratio).

One problem with calculating the leverage of law firms is the issue of non-equity partners or salary partners. Most firms don’t differentiate between their partner ranks publicly, which makes it all but impossible to find out the true P/A Ratio without knowing that a firm has only one partner class (meaning that all partners are equity partners).

Leverage tends to vary a lot between law firms, practice areas, firm segments and even countries. E.g., M&A as well as international arbitration are high leverage practice areas, whereas criminal or family law are regarded as rather low leverage practice areas. Larger law firms have often have higher gearing than smaller ones, and Indian firms usually employ more associates per partner than American firms, which, however have higher ratios than central European law firms.

Leverage affects your Income

David Maister, pioneer in the field and author of ‘Managing the Professional Service Firm’ came up with the following formula to calculate an equity partner’s profit: Profits per Equity Partner = L x U x BR x R x M, whereas L stands for Leverage (remark: Maister calculated the leverage by dividing the total amount of professionals incl. equity partners by the number of equity partners for his formula – otherwise his formula wouldn’t work mathematically), U for Utilization (average number of chargeable hours per person), BR for Billing Rate (average billing rate per chargeable hour), R for Realization (how much of the billing rate was actually billed after discounts and write-offs) and M for Margin (net income divided by revenue).

Maister’s formula clearly shows that the leverage is one of five factors in a partner’s profit calculation. For a profit-maximizing partner this only leads to one conclusion: the higher this factor (or any of the other factors) the higher your profits. So why wouldn’t one try to maximize the leverage? Well, a partner first needs enough cases on his desk to provide an additional associate with work. And even if you could pull that off: do you really want it?

More Leverage means more Supervision

A higher leverage, e.g. more associates, sounds great at the first instance: more profits, more people working for you, probably a more diverse team. However, more associates also mean more supervision and management. The need for supervision clearly declines with an associate’s experience and seniority. And at some point, more senior associates can and will partly be responsible for the supervision of their more junior colleagues (as well as their work). Yet, you will most probably not come around actually managing them: assigning and reassigning work, trouble-shooting, coaching, year-end evaluations etc.

In a study conducted in Switzerland, a colleague and I found out that many (lawyer) partners of BigFour firms make lateral moves to law firms. And while the reasons were manifold, one recurring theme was the amount of management required from partners in BigFour firms. And while these very large, heavily institutionalized firms force more administrative duties upon partners, the very high P/A Ratios in BigFour firms lead to a disproportional management and supervision effort from the partners. Therefore, let’s take a step back and reflect: do you really want that additional associate?

In the End it’s about your Strategy and Preference

As the previous sections have showed, leverage is a much more complex factor than Maister’s profit formula would make it look like. Deciding on your leverage, therefore, depends mainly on your (and the firm’s) strategy as well as your personal preferences.

As it relates to strategy, what are your goals? Do you want to become a high-end issue lawyer or engage in more bread and butter issues? Does your firm offer a diverse set of services or is it a litigation, M&A, tax or sports law boutique? What sort of clients do you want to attract?

And then, do you personally like to do a lot of research and deep dive into the legal issues or do you prefer client targeting, pitches, management, supervision and revision of other people’s work? Are you a lone wolf or do you enjoy working with and leading a team? Do you want to maximize your income or do you prefer more flexibility?

Don’t worry too much about the leverage. Rather take a step back and look at (or decide on) your strategy and be sure about your personal choices. The leverage decision is secondary.