In the thick of budget and compensation planning season, there’s good news for law firms scouting lateral partners: A primary indicator of lateral partner compensation cost has reached its lowest point since 2018.
Decipher Investigative Intelligence tracks the “compensation to book” percentage (Comp: Book ratio) across the legal sector. This metric reveals how much firms are willing to invest in talent for every dollar of anticipated revenue generated by a lateral partner’s book of business.
Before we review the current market dynamics around the compensation to book percentage, let’s first clarify how this metric is analyzed:
- We calculate the Comp: Book ratio by simply dividing the lateral’s compensation by the revenue they expect to bring in.
- For example, a lateral who is paid $1 million for a $1.5 million book of business would carry a Comp: Book ratio of .67, or 67%. In this case, the law firm is willing to pay 67 cents for every dollar of revenue this candidate brings over.
- For law firms, lower numbers are better. If the same lateral with a $1.5 million book seeks $850,000 in compensation, the Comp: Book ratio drops to .56, or 56%, leaving a greater margin for overhead and profit.
Let’s get back to the current market trends.
Again, in the context of compensation, this is the best “buyer’s market” in six years. Across all practices, experience levels and locations, the average Comp: Book ratio in Q3 2024 was 48%, 12 percentage points lower than 2023. Moreover, it’s a considerable drop from the post-pandemic “talent wars” in 2021 and 2022, when the Comp: Book ratio exploded to an eye-popping 109% and 107%, respectively.
In 2023, the talent market returned back to historical norms with a Comp: Book ratio of 60%; the 2024 percentage of 48% suggests law firms are regaining their leverage in the talent market.
Of course, this is an aggregate average; law firms preparing to court laterals must also understand the nuances among different practices, regions and levels of experience.
Practice Area Comp: Book Trends
Tax and Estate Planning laterals command the highest compensation ratio at 67% – 13 percentage points above the average. Other relatively expensive specialties include:
- Corporate: 59%
- Litigation: 57%
- Compliance & Regulatory: 56%
- Real Estate: 58%
Meanwhile, there are some relative bargains to be found, namely:
- Antitrust & Competition: 38%
- Intellectual Property: 49%
- Labor & Employment: 50%
Geographic Comp: Book Trends
First, the numbers show that law firms continue to invest in secondary markets; as we showed in June, there has been a rush to recruit rainmakers in cities outside the traditional business centers.
Indeed, when we compare the secondary markets to primary markets, the difference is obvious: Lateral partners in secondary markets command an average 60% Comp: Book ratio, compared with an average 53% Comp: Book ratio in larger cities.
In the secondary markets, law firms should prepare for premiums in San Antonio (77% Comp: Book ratio), Detroit (68%) and San Diego (64%). More attractive margins can be found in Salt Lake City (47%), Phoenix (50%) and Austin (53%).
In major markets, talent will cost the most in Philadelphia (70% Comp: Book ratio) and Houston (65%). Beyond these two, another six cities exceed the category average of 53%:
- Philadelphia: 70%
- Houston: 65%
- Dallas: 59%
- New York: 58%
- Los Angeles: 58%
- Washington D.C.: 57%
- Atlanta: 55%
- Silicon Valley: 54%
Higher-margin (and lower-compensated) lateral partners may be on the market in London (37%, the lowest ratio in all locations tracked), Miami (48%) and Boston (49%).
Experience and Comp: Book
Throughout 2024, law firms have shown a willingness to pay the most for experienced mid-level partners; laterals with 21 to 30 years of experience have the highest Comp: Book ratio at 62%.
Law firms are paying less for senior partners (56% for 31+ years of experience) and junior partners (48% for 11 to 20 years of experience).
What This Means for You
First, in today’s competitive legal market, law firms must adopt a data-driven approach to evaluating lateral hires, particularly regarding compensation and expected revenue. Failing to analyze market trends within the context of each candidate’s practice area, geographic location, and experience level can result in inflated compensation packages and diminished profit margins. Decipher offers custom data solutions that can provide critical benchmarks for your 2025 compensation.
Second, the cost of lateral partners may be coming down, but the risk remains high; lateral partner failure rates in 2024 are holding strong at around 50 percent. Meanwhile, keep in mind these ratios are based on expected revenue, and candidates often overestimate what they can actually bring over. Like Comp: Book ratios, client portability also varies by city, practice area and experience; this is another critical data point that must be considered.
The smartest approach: Consult reliable data to ensure you understand the macro market trends. At the same time, remember that laterals are people, too; each candidate is different and should be subject to comprehensive pre-hire due diligence to minimize risks, ensure an understanding of the actual expected revenue, and confirm a right fit.