It’s All Relative

We all need a certain amount of money to be happy. Without income, we cannot provide ourselves and our families with food, shelter, clothing, entertainment, etc. But how much is enough? For most of us, it is all relative. If we feel like we are being treated like our peers, then we are content. If we feel like we are being paid less than our peers for the same effort, then we are apt to feel underpaid.

This point is well illustrated by a conversation I recently had with an associate at a large firm. This associate works long hours; but her firm is not leading the pack in associate compensation. For the 2200 hours she billed in 2007, this associate received a base salary of $185K (a healthy pay check for most Americans.) The problem for her is that her law school friends at other large firms billed fewer hours and took home an additional 80K (when bonuses are factored in–her firm pays small bonuses.)

In absolute terms, this associate is earning way more than she might have earned 10 years ago (i.e. even after factoring in inflation.) At her level, she might have expected to draw 25% less salary in today’s dollars. This is because salary inflation at large firms has outpaced inflation in the broader economy.

So what is the answer? For her, it may mean finding a firm that pays less but demands less. On the other hand, maybe her path to happiness lies in making different comparisons. Maybe she should look at what lawyers in general earn at her level. While salaries continue to skyrocket at the larger firms, the same inflation is not being felt at smaller firms.

In short, she is doing much better than she might be doing if larger firms had not started a salary war. She is doing much better than her peers who did not land jobs at large law firms (and who may be working just as hard.) It’s all relative!

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