"Suicide Pricing" & the coming law firm crisis

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rayiner
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Re: "Suicide Pricing" & the coming law firm crisis

Postby rayiner » Sat Dec 01, 2012 4:25 am

There is value in that. There's plenty of legal work that any idiot can do. Hell, I don't understand why doc review requires actual attorneys, and not just high school graduates.


Doc review isn't actually that easy. Coding is pretty easy--just marking a document as "relevant" versus "not relevant" but even that must be done with some care--you don't want to miss out on a key document because some doc review attorney can't parse enough of an e-mail to realize it's relevant even though it doesn't have a bunch of key terms flashing at him. And once those documents are coded, someone actually has to take those relevant documents and piece it into some sort of comprehensible narrative of what's going on, and that also falls under the umbrella of "doc review." Given that the disputes handled by big law firms are generally fairly sophisticated in nature, doing this is not easy without people who can quickly grasp the contours of what may be a pretty convoluted situation in an unfamiliar problem domain.

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dingbat
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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Sat Dec 01, 2012 6:50 am

rayiner wrote:
There is value in that. There's plenty of legal work that any idiot can do. Hell, I don't understand why doc review requires actual attorneys, and not just high school graduates.


Doc review isn't actually that easy. Coding is pretty easy--just marking a document as "relevant" versus "not relevant" but even that must be done with some care--you don't want to miss out on a key document because some doc review attorney can't parse enough of an e-mail to realize it's relevant even though it doesn't have a bunch of key terms flashing at him. And once those documents are coded, someone actually has to take those relevant documents and piece it into some sort of comprehensible narrative of what's going on, and that also falls under the umbrella of "doc review." Given that the disputes handled by big law firms are generally fairly sophisticated in nature, doing this is not easy without people who can quickly grasp the contours of what may be a pretty convoluted situation in an unfamiliar problem domain.

I stand corrected. Thank you

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Re: "Suicide Pricing" & the coming law firm crisis

Postby JCougar » Sat Dec 01, 2012 1:39 pm

Doc review isn't terrible, either, if you're only doing it for a couple days or so, or if you have a pile to weed through but you have a couple months to get through it, so you can do it whenever you have some spare time. It's mostly mindless, repetitive work, but you do have to have a pulse, because there might be one or two sentences in some record or e-mail out of a couple thousand pages, but finding that sentence can swing the entire case.

The problem is that if it's all your doing, you don't build any skills.

It's great to keep a pile of documents on your desk for days when you're just out of it/slightly hungover. You can have a cup of coffee, sit down, and plow through a couple hundred pages and bill a large block of hours.

The thing with a lot of Biglaw cases, though, is that discovery can get ridiculous and they can generate sometimes tens of millions of pages of documents to review, and the client obviously doesn't want to pay $250/hour for people to go through those.

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rayiner
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Re: "Suicide Pricing" & the coming law firm crisis

Postby rayiner » Sat Dec 01, 2012 9:20 pm

JCougar wrote:Doc review isn't terrible, either, if you're only doing it for a couple days or so, or if you have a pile to weed through but you have a couple months to get through it, so you can do it whenever you have some spare time. It's mostly mindless, repetitive work, but you do have to have a pulse, because there might be one or two sentences in some record or e-mail out of a couple thousand pages, but finding that sentence can swing the entire case.

The problem is that if it's all your doing, you don't build any skills.

It's great to keep a pile of documents on your desk for days when you're just out of it/slightly hungover. You can have a cup of coffee, sit down, and plow through a couple hundred pages and bill a large block of hours.

The thing with a lot of Biglaw cases, though, is that discovery can get ridiculous and they can generate sometimes tens of millions of pages of documents to review, and the client obviously doesn't want to pay $250/hour for people to go through those.


By and large that shift has already happened. In cases that involve a large number of documents, first review is already outsourced to a document review company, and associates only do second review. Clients don't like paying $250/hour for that either, but it doesn't appear they are prepared to, at least at the moment, completely entrust that process to an outsourcing firm or digital analysis.

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thesealocust
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Re: "Suicide Pricing" & the coming law firm crisis

Postby thesealocust » Sat Dec 01, 2012 9:47 pm

Yep, I'm sure the few recent major cases involving e-discovery gone awry has something to do with it.

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Objection
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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 3:43 pm

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.

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androstan
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Re: "Suicide Pricing" & the coming law firm crisis

Postby androstan » Sun Dec 02, 2012 4:15 pm

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).

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Re: "Suicide Pricing" & the coming law firm crisis

Postby 09042014 » Sun Dec 02, 2012 4:20 pm

androstan wrote:
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).



You aren't going to make partner or not make partner based on gunning out another 100 hours. And they already encourage you to do as many hours as possible. The bonus structure in big law is shitty.

But the problem is, you have gunners like this retard, who gladly do it for free for the cunthair thick chance at getting partnership.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby imchuckbass58 » Sun Dec 02, 2012 4:29 pm

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).


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.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby 09042014 » Sun Dec 02, 2012 4:32 pm

imchuckbass58 wrote:
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).


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.


This only makes his point more. They should be encouraging as many hours over 2000 as possible. Every hour is pure profit from there.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby imchuckbass58 » Sun Dec 02, 2012 4:38 pm

Desert Fox wrote:This only makes his point more. They should be encouraging as many hours over 2000 as possible. Every hour is pure profit from there.


Oh yeah, I completely agree the pay structure is ridiculously stupid. I guess the only point I wanted to make was people underestimate how much of cash cow junior associates are. Not entirely relevant, I agree, but most people think biglaw firms are just rolling in the dough where really a moderate dip in realization or average hours billed can really impact PPP and destabilize a firm. Which I guess is even better reason for them to use incentive pay.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby androstan » Sun Dec 02, 2012 5:12 pm

Desert Fox wrote:
androstan wrote:
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).



You aren't going to make partner or not make partner based on gunning out another 100 hours. And they already encourage you to do as many hours as possible. The bonus structure in big law is shitty.

But the problem is, you have gunners like this retard, who gladly do it for free for the cunthair thick chance at getting partnership.


Eh, I don't think you're going to make partner for billing 100 extra hours. I think you have to be smart about it, not just bill max hours all the time. You want to have good relationships with the partners, be seen as reliable, and thought of as the person to go to in a pinch. That will require some sacrifice and you'll usually end up billing more than the minimum. The exact # of hours isn't important, though, but rather the impressions you make and the relationships you develop. Working hard is just one additional way to improve those. It sucks that there's no financial incentive to go over a certain #, but I maintain that the alternative is probably worse. The current model lets everyone do quality work and do as many hours as they're comfortable with. Those that want partnership will work more, those that don't can relax and do at/near the minimum. A situation where everyone wants as many hours as possible, regardless of whether they actually want a career at a firm, would be a mess.

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 won't be paid for it, even if it's very important to the partner, even when someone is really needed to do it, 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.

That's just how I see it. Others have different views, and I think we can all express them and coexist without devolving into childish name-calling.
Last edited by androstan on Sun Dec 02, 2012 5:13 pm, edited 1 time in total.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby BeenDidThat » Sun Dec 02, 2012 5:12 pm

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.


Bahahahaha you have no idea how law firm economics work, nor do you understand long-term incentives. Seriously, thank you for the laugh.

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Objection
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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 5:21 pm

androstan wrote:
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.


Enlighten me.

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).

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Re: "Suicide Pricing" & the coming law firm crisis

Postby BeenDidThat » Sun Dec 02, 2012 5:23 pm

Objection wrote:
androstan wrote:
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.


Enlighten me.

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).


My (big) firm broke the economics down to us. I will share neither my firm nor the exact figures, but the gist of it is this: you're greatly underestimating overhead, you're greatly overestimating hours collected, and you're greatly underestimating the long-term benefits derived from doing really good legal work.

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Objection
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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 5:30 pm

My (big) firm broke the economics down to us. I will share neither my firm nor the exact figures, but the gist of it is this: you're greatly underestimating overhead, you're greatly overestimating hours collected, and you're greatly underestimating the long-term benefits derived from doing really good legal work.


I don't think I commented on the benefits of doing good legal work. I thought I said that there is no incentive to actually do good legal work. If I misspoke (typed), apologies.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 5:35 pm

Also, just to add:

All the law firm economics in the world don't change...

1. Firms (mine in particular) are doing better now than they were in 2007 when first year bonuses started at $45,000.

2. There are some trend defying firms that have a similar or less RPL that pay significantly better bonuses than most.

Which shows that a lot of firms are simply poorly managed, which I don't consider a valid excuse.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby BeenDidThat » Sun Dec 02, 2012 5:38 pm

Objection wrote:
My (big) firm broke the economics down to us. I will share neither my firm nor the exact figures, but the gist of it is this: you're greatly underestimating overhead, you're greatly overestimating hours collected, and you're greatly underestimating the long-term benefits derived from doing really good legal work.


I don't think I commented on the benefits of doing good legal work. I thought I said that there is no incentive to actually do good legal work. If I misspoke (typed), apologies.


Uhh, what? If you say there's no incentive for you, that implies that there's no benefit to you (I didn't mean benefits to the firm, the client, or society).

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Re: "Suicide Pricing" & the coming law firm crisis

Postby imchuckbass58 » Sun Dec 02, 2012 5:38 pm

Objection wrote: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).


This is the realization rate data point. Comes from a Citi Private Bank survey:

http://www.adamsmithesq.com/2012/09/gro ... ad-part-i/

Not going to out where I got the cost data, but it is based on actual data, not guesstimates.

Also, not sure how your firm works, but in many cases your timesheets will show if partners write off your time, but not if they client refuses to pay (which both account for <100% realization).

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Re: "Suicide Pricing" & the coming law firm crisis

Postby rayiner » Sun Dec 02, 2012 5:40 pm

imchuckbass58 wrote:
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).


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.


The historical rule of thumb is that out of the revenue an associate brings in, 1/3 goes to salary, 1/3 goes to overhead, and 1/3 goes to profit.

Now, consider a first year associate billing 2,000 hours at $300/hour. For the rule of thirds to hold, his realization would have to be 85%, which is of course highly unlikely. If his realization is more like 60%, that doesn't reduce his salary or overhead, but reduces partner profit to just $14k.

What this shows though is that there is quite a bit of room to squeeze out higher profits by cutting non-compensation expenses.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby rayiner » Sun Dec 02, 2012 5:41 pm

Objection wrote:Also, just to add:

All the law firm economics in the world don't change...

1. Firms (mine in particular) are doing better now than they were in 2007 when first year bonuses started at $45,000.

2. There are some trend defying firms that have a similar or less RPL that pay significantly better bonuses than most.

Which shows that a lot of firms are simply poorly managed, which I don't consider a valid excuse.


Associate compensation is a function of supply/demand in the associate labor market. Firm profits might be back up, but that's happening in an environment with a lesser demand for associate labor despite a fix supply of top law school graduates.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 5:46 pm

rayiner wrote:
Objection wrote:Also, just to add:

All the law firm economics in the world don't change...

1. Firms (mine in particular) are doing better now than they were in 2007 when first year bonuses started at $45,000.

2. There are some trend defying firms that have a similar or less RPL that pay significantly better bonuses than most.

Which shows that a lot of firms are simply poorly managed, which I don't consider a valid excuse.


Associate compensation is a function of supply/demand in the associate labor market. Firm profits might be back up, but that's happening in an environment with a lesser demand for associate labor despite a fix supply of top law school graduates.


Yet the continue to raise associate rates. Mine went from $425 to $475 in two months just because the 2nd month was when our billable year reset.

Also, I can understand how what you're saying would impact hiring, but once we're in, why should it/does it impact compensation?

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Gorki » Sun Dec 02, 2012 5:58 pm

androstan wrote:
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).


Says the 1L gunner to the actual biglaw associate

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Re: "Suicide Pricing" & the coming law firm crisis

Postby dingbat » Sun Dec 02, 2012 5:58 pm

Objection wrote:Yet the continue to raise associate rates. Mine went from $425 to $475 in two months just because the 2nd month was when our billable year reset.

Forget about how much they bill. Why should a firm pay a first year more when there are plenty of people who want biglaw and can't get it who are more or less just as qualified?

Basic economics: an employer will try to pay an employee as little as they can get away with, in order to maximize profits. Just because they can make more profit off you doesn't mean they're obligated or incentivized to offer you any more than they would at a lower profit point.

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Re: "Suicide Pricing" & the coming law firm crisis

Postby Objection » Sun Dec 02, 2012 6:05 pm

dingbat wrote:
Objection wrote:Yet the continue to raise associate rates. Mine went from $425 to $475 in two months just because the 2nd month was when our billable year reset.

Forget about how much they bill. Why should a firm pay a first year more when there are plenty of people who want biglaw and can't get it who are more or less just as qualified?

Basic economics: an employer will try to pay an employee as little as they can get away with, in order to maximize profits. Just because they can make more profit off you doesn't mean they're obligated or incentivized to offer you any more than they would at a lower profit point.


And we are just circling back to my original points here. The pressure and incentives are seriously misaligned.





Uhh, what? If you say there's no incentive for you, that implies that there's no benefit to you (I didn't mean benefits to the firm, the client, or society).


I did say there is no incentive to doing good legal work. We are agreeing. I'm not sure what you are getting at.




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