Wednesday, August 22, 2007

$1,000/hour? Nero has become managing partner and is fiddling away....

Posted by Nancy Rapoport

Jeff's post on this latest rate increase points out that some lawyers are worth $1,000/hour or more, but the group of lawyers that can justify that rate is a much smaller pool than the group of lawyers charging (or about to charge) that rate.  And that high rate is efficient only if the lawyer charging it is doing those tasks that use his or her specialized expertise.  The problem, of course, is that the rate doesn't distinguish between "review file" and "develop brand-new legal theory that saves the day."  And then there's the copycat issue, where lawyers who think that they're worth $1,000/hour want to increase their rates just to stay in the game.

I found Steve Susman's comment about his hourly rate most interesting: 

Plaintiffs['] trial lawyers often bill on a contingency-fee basis, earning a share of a settlement or verdict -- an amount that can dwarf top rates. "It represents an opportunity cost when I am working by the hour," says Mr. Susman, who last year raised his hourly fee to $1,100. He did it in part, he says, "to discourage anyone hiring me on that basis."

That reason I can understand, and I set my own consulting rate very high (but not $1,000/hour high!) for the same reason.  How many of the law firms increasing their rates to the new four-digit high spend much time calculating their "value added" part of the equation?  I'll bet that, instead, they're just trying to make ends meet, given the still-increasing overhead caused by high associate salaries, and of course there's always the ego problem (he charges $X, therefore I will, too).  Other folks (including here, here, and here) have been noticing the increasing disconnect between fees and value.  Something's going to give, and soon--and Nero's new rates are speeding it along.

Billable Hours, Law Firms, Partners, Rapoport, The Practice | Permalink

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In terms of a disconnect between fees and value: couldn't this apply to all manner of highly paid professionals working on big transactions?

I will start being alarmed a high lawyer salaries when they begin to approach the tens of millions hedge fund managers make. Making $140M last year would not even get you into the top 25 hedge fund managers.

It's probably part of the WSJ's ideological agenda to highlight the growing pay of lawyers while failing to criticize how it is dwarfed by that of businessman and financiers. In a world of inequality and ever-less-progressive taxation, we shoudl not be surprised by ever higher demands for pay by professionals.

Posted by: FrankP | Aug 23, 2007 9:23:17 AM

I don't understand this post at all. If lawyers are not "worth" $1,000/hour then presumably clients would not retain them. If clients are willing to pay $1,000/hour, then what's the problem?

Posted by: Joe | Aug 24, 2007 9:28:30 AM

How Susman Fixed his and his associates - partners hourly price tags:

Price Edict A: “You … determine the price … based on … [cost] ….”

Price Edict B: “The green [thumb sellers] use[s] average-cost-…. pricing…”

Price Edict C: “[I]n a competitive market price is equal to cost and each [Esq.] seller knows his own cost.”

I am not good at price math, but I know how to add and divide. In price consideration math 101, the rules require that I add or count what my “costs” to live comfortably are or will be every month. From there, the rules order that I divide that total by the number of “hourly units” of my time reasonably calculated to cover that tab:

A) + All costs to live comfortably:
B) %: Divided by hour units to be sold working; &
C) = 1 fixed price tag – collection time costs included.

Posted by: Gary Bonas | Oct 11, 2009 2:06:51 PM

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