Objection wrote:I'm not reading this whole thread, and I don't know what it's about.
The biggest problem with big law from an associate perspective is the misalignment of incentives for the partners and the associates.
Take a first year being billed out at $400/hour and making $160,000.
After 400 hours they're essentially working for free. Even if you assume 50% of what they make needs to go to overhead, they're working for free after 800 hours.
However, because partners make more money the more hours associates work, minimum hour requirements are set at 2000 (at which point the associate has earned $800,000 for the firm).
With most bonuses being lockstep, there's no internal motivation (outside of keeping your job) for an associate to want to meet or exceed 2000 hours. The more they work, the less they make per hour (the less % of the money they made for the firm they see).
It'd be so easy to make big law associates happy by doing one of the following:
1. Allow the associate to earn in bonuses 50-75% of their hourly rate after the minimum hour requirement (meaning someone who works 2500 hours being billed at $400/hour gets a $100-$150k bonus). Hell, even keeping it 20% would mean a $40k bonus. Right now, an associate who hits 2500 hours at the current Cravath scale sees 5% of the money they made for the firm for each hour after 2000. It comes out to $20/hour.
2. Pay $160k but make it so the end of the year bonus makes you "whole" up to 40% of the amount you made for the firm. Using 2500 hours again, you made $1m for the firm, so your end of the year bonus would be $140k.
3. Keep pay and bonuses where they are, but stop raising rates, lower hours.
What it boils down to for me is lockstep pay makes no sense in a big law system, and I have no incentive to bill more for the firm if I don't realize any fruits of that labor.
Fixed. And the reason to bill more hours is to please partners who will weigh in on your chances of partnership and/or recommend you to premium exit options. The reason to not pay more for more hours is to prevent an associate "race to the bottom" where they all work themselves to the bone to maximize dollars, and also to prevent them from focusing too much on just billable hours, which aren't everything (at least after your first few years).
Do you work in big law? You can't honestly believe this. We're already incentivized to bill as many hours as possible, with minimal tangible quality goals. This is because of the billable hour. Inefficiency makes firms money; efficiency is frowned upon. So as it stands, we're already told to work ourselves to the bone to maximize dollars and focus on billables. The only difference between my proposals and now is that the incentives would come from within rather than "do it or you're fired."
Also, the majority of big law associates don't care about making partner. Firms know this. That's a crappy incentive.
Bahahahaha you have no idea how law firm economics work, nor do you understand long-term incentives. Seriously, thank you for the laugh.
What I see is myself being billed out at $475/hour and told to work 2000 hours and keep going, while the natural incentives are for me to want to work less.
What I see is PPP and revenue increasing while bonuses decrease or stay middling.
I'm telling you what would incentivize me and incentivize my co-workers at similar levels. I can't imagine your'e going to tell me it wouldn't incentivize me long-term, but I am still curious about your law firm economics comment. The more associates bill, the more a firm makes, the more an equity partner makes. Equity partners need us to work more for their bottom lines, but working more doesn't affect ours, and we see diminishing returns the more we work. Where is that wrong?
Making sure you do the absolute minimum hours b/c there's no financial incentive to go over is a great way to be seen as someone with a job, not a career. Turning down work because it'll make you go over 2000 and you're won't be paid for it, even if it's very important to the partner, even when someone is really needed, is a great way to be seen as someone who only cares about himself and will gladly let anyone else take on the extra burden.
Most people in big law are there for the job, not for the career. You can't be in big law and not know this.
So, I agree with your general point about incentives, but you're substantially underestimating costs and substantially overestimating revenue for an associate.
I've seen figures that indicate that at an average NYC biglaw firm:
(1) fully loaded costs per associate (i.e., including not just salary and benefits, but real estate, all non-billable staff such a secretaries, admin departments, IT, recruiting, etc.) is ~$500k per associate. So you're really look at ~1250 hours collected (not billed) to cover overhead, before paying a single cent to partners.
(2) Realization rates (i.e., hours collected divided by hours billed) are ~85% firmwide for all levels including partners. So if a lawyer bills 2000 hours, the firm will on average collect 1700 hours from clients. For first year associates this is much, much lower.
I wouldn't be surprised if first year associates were barely breakeven, contributing nothing for partner compensation. The real moneymakers are midlevel and senior associates, where both your billing rates and realization rates go up considerably, while costs stay relatively constant.
I'd love to see these figures.
I'm also 500 billable hours in over the past 10 weeks, and none of my hours have been chopped (it shows on the time sheets when that happens).