"Suicide Pricing" & the coming law firm crisis

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

Postby dingbat » Sun Dec 02, 2012 6:15 pm

Objection wrote:
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.

The incentive is a big fat paycheck. There are people willing to work just as hard under equally crappy conditions for a lot less.
Look at it differently. If the firm has a rough time and is making a lot less money, would you be just as willing to have them cut your paycheck in half? I was at a company that had a change of fortune and was losing money. I accepted not getting a bonus, but I certainly did not accept a pay cut.

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

Postby Objection » Sun Dec 02, 2012 6:17 pm

dingbat wrote:
Objection wrote:
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.

The incentive is a big fat paycheck. There are people willing to work just as hard under equally crappy conditions for a lot less.
Look at it differently. If the firm has a rough time and is making a lot less money, would you be just as willing to have them cut your paycheck in half? I was at a company that had a change of fortune and was losing money. I accepted not getting a bonus, but I certainly did not accept a pay cut.


Yes.

But more to the point, I'd rather have my compensation directly tied to my performance, rather than lockstep. Especially with regard to bonuses.

This also doesn't change that the incentives aren't aligned. All that big law gunning law students do is reduce our leverage, not change the incentive misalignment.

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

Postby dingbat » Sun Dec 02, 2012 6:31 pm

Objection wrote:But more to the point, I'd rather have my compensation directly tied to my performance, rather than lockstep. Especially with regard to bonuses.
This I agree with. I understand lock-step for the first few years, when it's hard to tell how well one associate performs relative to another, but after that it just doesn't make sense. As for bonuses, I don't know enough to comment.
Objection wrote:This also doesn't change that the incentives aren't aligned. All that big law gunning law students do is reduce our leverage, not change the incentive misalignment.
This I don't get. Your incentives to do well are:
1) Keep your job (and that big fat paycheck)
2) progress your career (toward good lateral opportunities or toward partnership)
What am I missing?

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

Postby sadsituationJD » Sun Dec 02, 2012 6:36 pm

Why not just hire 4 mediocre TTT mouth breathers at 40 K a year each and have them work a regular 9-5 workday, instead of one Ivy grad at 160 K who has to grind out 90 hours a week?

I guarantee there would be absolutely no difference in "quality," since legal work is routine cut n' paste, requiring little in the way of talent, skill, writing ability, logic/reasoning, or brainpower. Cut n paste is cut n' paste whether it's a Harvard valedictorian, a Cooley/NYLS anchorman, or Koko the lobotomized circus chimp doing it.

Clients have figured this out, hence far less associates and far more $20 an hour temps and, hell, even software/coder-robots to grind thru the bales of makework paper churning.

If legal work was truly "hard," law school and the bar exam would be difficult and a true barrier to entry. They are not.

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

Postby dingbat » Sun Dec 02, 2012 6:51 pm

sadsituationJD wrote:I guarantee there would be absolutely no difference in "quality," since legal work is routine cut n' paste, requiring little in the way of talent, skill, writing ability, logic/reasoning, or brainpower. Cut n paste is cut n' paste whether it's a Harvard valedictorian, a Cooley/NYLS anchorman, or Koko the lobotomized circus chimp doing it.

What the fuck are you smoking? If that's your outlook, I understand why you've failed at life.

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

Postby Objection » Sun Dec 02, 2012 6:53 pm

dingbat wrote:
Objection wrote:But more to the point, I'd rather have my compensation directly tied to my performance, rather than lockstep. Especially with regard to bonuses.
This I agree with. I understand lock-step for the first few years, when it's hard to tell how well one associate performs relative to another, but after that it just doesn't make sense. As for bonuses, I don't know enough to comment.
Objection wrote:This also doesn't change that the incentives aren't aligned. All that big law gunning law students do is reduce our leverage, not change the incentive misalignment.
This I don't get. Your incentives to do well are:
1) Keep your job (and that big fat paycheck)
2) progress your career (toward good lateral opportunities or toward partnership)
What am I missing?


Well I mean you have to do the work to keep your job in any job. It's the absolute minimum, baseline incentive, and when it's the only one, its kind of dickish and akin to threatening you into following the shitty system. It's a brute force way of "aligning" incentives.

But moving a step beyond that...

What I'm saying is the way they structure the work and the requirements they set and how they make money are not aligned with how we are naturally incentivized to work within the system.

By way of example...

If I get an assignment I can complete in 4 hours just as good as I could complete it in 8, partners would prefer I take the full 8, even though that means I have to work more hours. My incentive, of course, is to complete it in 4 and work less hours. This illustrates what I mean. At the associate level we are personally and instinctively incentivized toward efficiency, but inefficiency is what drives law firm revenue.

Keeping your job should be about the quality of your work, not the number of hours you bill.

As for partnership, few want that (firms know this, it's built into their model) and even if they did, the odds are so stacked against you even if you bill 4000 a year.

Lateral opportunities are there just by being in big law.
Last edited by Objection on Sun Dec 02, 2012 6:58 pm, edited 1 time in total.

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

Postby Tanicius » Sun Dec 02, 2012 6:56 pm

sadsituationJD wrote:Why not just hire 4 mediocre TTT mouth breathers at 40 K a year each and have them work a regular 9-5 workday, instead of one Ivy grad at 160 K who has to grind out 90 hours a week?

I guarantee there would be absolutely no difference in "quality," since legal work is routine cut n' paste, requiring little in the way of talent, skill, writing ability, logic/reasoning, or brainpower. Cut n paste is cut n' paste whether it's a Harvard valedictorian, a Cooley/NYLS anchorman, or Koko the lobotomized circus chimp doing it.



I generally side with the school of thought that finds biglaw to be mundane, relatively non-useful work experience, and even I disagree with you. The different skills abilities of attorneys was apparent even at my 1L public defender internship. The amount of people who just can't write and just don't get the logic behind legal research is pretty high. Your credibility has been zero for quite a long time now, but please do keep embarrassing yourself.

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

Postby Objection » Sun Dec 02, 2012 6:59 pm

Striking a middle ground between sadsituation and everyone else, while I think the differences in schools matter, I don't think you'd see a significant difference between someone who started big law after finishing 1 year of law school and someone who went through all 3.

3 years of law school is absurd, and is one of the major problems in this whole scheme.

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

Postby BeenDidThat » Sun Dec 02, 2012 7:04 pm

I 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.


Objection wrote: 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.


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


We're not agreeing. I'm saying that there are significant long-term benefits to doing good legal work. That's an incentive. You're saying there is no incentive. We disagree as much as anyone could disagree on this point.

Long-term benefits (or incentives, whatever the hell you want to call them):
- Keeping your job
- Potentially becoming a partner
- Having better exit opportunities
Last edited by BeenDidThat on Sun Dec 02, 2012 7:09 pm, edited 5 times in total.

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

Postby dingbat » Sun Dec 02, 2012 7:04 pm

Objection wrote:Keeping your job should be about the quality of your work, not the number of hours you bill.

This is a fallacy you should unlearn.

From an economic perspective, someone will only employ you for one of two reasons:

1) you do something they don't want to do (e.g. a janitor gets hired to clean toilets)
2) you can generate revenue (e.g. a salesman)

While some jobs are a combination thereof, this is generally why anyone would hire anyone else.
Now, let's take this into a different context:

If a janitor cleans the toilet so it's shiney, they get to keep their job.
If another janitor polishes the inside of the latrine and the inside of the soap dispenser, they're clearly doing a better job. But a cleaning company hires out both janitors at the same rate.

If a firm can make more money by billing you out at more hours, then that's more valuable to the firm than getting the job done quickly.

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

Postby BeenDidThat » Sun Dec 02, 2012 7:12 pm

I'm thinking they should teach microeconomics in law school.

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

Postby Gorki » Sun Dec 02, 2012 7:21 pm

dingbat wrote:
If a firm can make more money by billing you out at more hours, then that's more valuable to the firm than getting the job done quickly.


This is one of the reasons why biglaw model is increasingly under pressure to "go lean," clients are catching on to this crap. Not sure if its true in every jurisdiction, but this proposition could lead to sanctions against the firm I am pretty sure.

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

Postby Mr. Jones » Sun Dec 02, 2012 7:25 pm

Here's a very long interview question that was posed to me during the interview.

"Law school is pretty expensive...most students take a lot of debt out to go, hundreds of thousands of dollars in debt with a high interest rate. I mean, law students basically have mortgages that can't be discharged, have super high interest rates, and they don't even get a house. So why was it a good business decision for you to go to law school? Why should I, or our clients, trust your advice given the poor legal market and high cost of attending?"

-Disclaimer: This statement doesn't apply to me for a variety of reasons, I told him that. But it got me thinking, if you were on the other side of the table, wouldn't you be worried about hiring someone with so much debt (who will bill you hours to pay it down) and a bad business mind?

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

Postby imchuckbass58 » Sun Dec 02, 2012 7:25 pm

rayiner wrote: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.


Kind of, not really. There are all sorts of weird features of the associate labor market that don't really make sense from a supply and demand perspective. For instance, why does DLA Piper pay the same as Cravath, even though they're billed at very different rates and are drawn from a different candidate pool? Why do associates at Gibson Dunn Dallas get paid the same as associates at Gibson Dunn New York? When midlevels in high-demand specialties lateral, why do they get paid the same as midlevels in low-demand practice areas?

There's a lot of weird stuff going on with the obsession firms have with lockstep associate pay, paying "market" even if you're not in the same market, and other non-monetary compensation like partnership prospects and exit options. I agree that associate pay broadly follows supply and demand in the sense that supply and demand is why first year associate pay isn't $80,000 or $240,000, but it's one of the least efficient private labor markets I can think of.

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

Postby Anonymous User » Sun Dec 02, 2012 7:26 pm

dingbat wrote:
Objection wrote:Keeping your job should be about the quality of your work, not the number of hours you bill.

This is a fallacy you should unlearn.

From an economic perspective, someone will only employ you for one of two reasons:

1) you do something they don't want to do (e.g. a janitor gets hired to clean toilets)
2) you can generate revenue (e.g. a salesman)

While some jobs are a combination thereof, this is generally why anyone would hire anyone else.
Now, let's take this into a different context:

If a janitor cleans the toilet so it's shiney, they get to keep their job.
If another janitor polishes the inside of the latrine and the inside of the soap dispenser, they're clearly doing a better job. But a cleaning company hires out both janitors at the same rate.

If a firm can make more money by billing you out at more hours, then that's more valuable to the firm than getting the job done quickly.


I understand this. Trust me, I do. What I'm saying is that the only incentive to be inefficient and work long hours is that you won't get fired. That's barebones, and not exactly conducive to morale or a good work environment, which is what started this whole side discussion (how to make associates happier quite easily). Employers that do not do anything more than the absolute minimum for their employees are pieces of shit.

I also said should, not is. I think this particularly holds true in the legal profession, where better work often leads to better results for our clients (which doesn't really fit the janitor analogy).

Your janitor analogy doesn't work here for another, possible fighting-the-hypo reason. If the janitor was told to clean the toilet, which takes 4 hours, but he has to take 8 hours to do it, the janitor, who is almost certainly hourly, will see personal gains because of that inefficiency, even if his employer sees more gains from that inefficiency than he does personally. There's some alignment there other than "do it or you're fired."

BDT: with regard to work quality, there's a minimum acceptable quality that needs to be met, and that's about it. You exceed that for one partner on one assignment, and you've done all you need to do to give yourself lateral opportunities. The rest of the time as long as your work is good enough and slow enough, you're fine. Your not incentivized to do anything more than that minimum acceptable quality.

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

Postby Objection » Sun Dec 02, 2012 7:29 pm

Didn't mean to post that anonymously

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

Postby JCougar » Sun Dec 02, 2012 7:32 pm

BeenDidThat wrote:I'm thinking they should teach microeconomics in law school.


They should teach a lot of things that they don't teach currently in law school, given that they have three years to teach you. Economics would be one useful thing for almost all lawyers. Social psychology would also be useful. Foreign languages would probably benefit a decent number of lawyers as well.

Of course, teaching law students actually useful skills would sort of be a tacit admission that the regular law school curriculum teaches you nothing useful, at least after 1L. Which is why they won't do it.

The legal industry does not make rational changes because it's attitude toward change is that "if I try to improve, it is a tacit admission that what I was doing before wasn't perfect--and I don't want to admit that, so I won't change." It's the ultimate in insecurity and lack of leadership.

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

Postby imchuckbass58 » Sun Dec 02, 2012 7:40 pm

BeenDidThat wrote:I'm thinking they should teach microeconomics in law school.


They should also teach you how to practice law in law school.

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

Postby dingbat » Sun Dec 02, 2012 7:42 pm

Mr. Jones wrote:Here's a very long interview question that was posed to me during the interview.

"Law school is pretty expensive...most students take a lot of debt out to go, hundreds of thousands of dollars in debt with a high interest rate. I mean, law students basically have mortgages that can't be discharged, have super high interest rates, and they don't even get a house. So why was it a good business decision for you to go to law school? Why should I, or our clients, trust your advice given the poor legal market and high cost of attending?"

Quick answer: I give legal advice. If you want financial advice the business school is next door.

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

Postby dingbat » Sun Dec 02, 2012 7:49 pm

Anonymous User wrote: there's a minimum acceptable quality that needs to be met, and that's about it. The rest of the time as long as your work is good enough and slow enough, you're fine. Your not incentivized to do anything more than that minimum acceptable quality.
This is true about most jobs. Welcome to the real world.

Also, to go back to the hypo: if the janitor tries to bill 8 hours when the standard is 4 hours, the client won't pay. Believe it or not, the same is (somewhat) true for legal services. We (at my last job) frequently would "discuss" the bill, if it seemed too high. There's also fixed-fee work, where it doesn't matter to us how much time you spend on a project, as long as it's completed as and when needed. I'm pretty sure the associate "billed" the same way s/he usually did and while those were credited to the associate's tally, there was no difference in compensation to the firm.

But yes, there's a disincentive re efficiency for any job involving any time-based compensation. Then again, when someone is paid by the job, there's a big incentive to get the job done quickly, even if it's not done as well (but good enough).
Neither system (flat fee v hourly rate) is perfect. In a legal matter, I think it's better for a lawyer to do too much work than not enough.

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

Postby Objection » Sun Dec 02, 2012 8:00 pm

We agree on that. my original point was that if they're going to rely on hourly models, lockstep is not desirable as an associate, and is pretty deflating to morale (since it makes the only incentive one of "do it or get fired"). Get the associates to want to take their time right along with the partners, and big law would be a much less soul draining job for associates.

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

Postby dingbat » Sun Dec 02, 2012 8:03 pm

Objection wrote:We agree on that. my original point was that if they're going to rely on hourly models, lockstep is not desirable as an associate, and is pretty deflating to morale (since it makes the only incentive one of "do it or get fired"). Get the associates to want to take their time right along with the partners, and big law would be a much less soul draining job for associates.
But then there'd be much more competition to become partner.

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

Postby Objection » Sun Dec 02, 2012 8:07 pm

dingbat wrote:
Objection wrote:We agree on that. my original point was that if they're going to rely on hourly models, lockstep is not desirable as an associate, and is pretty deflating to morale (since it makes the only incentive one of "do it or get fired"). Get the associates to want to take their time right along with the partners, and big law would be a much less soul draining job for associates.
But then there'd be much more competition to become partner.


Which would promote better quality work!

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

Postby imchuckbass58 » Sun Dec 02, 2012 8:11 pm

dingbat wrote:
Anonymous User wrote: there's a minimum acceptable quality that needs to be met, and that's about it. The rest of the time as long as your work is good enough and slow enough, you're fine. Your not incentivized to do anything more than that minimum acceptable quality.
This is true about most jobs. Welcome to the real world.


It's really not though, at least for most professional jobs that are closest to being a lawyer (banker, consultant, accountant, marketing / BD / other roles at large corporations). In most of these jobs, you will get a raise each year. This raise is not lockstep and exclusively determined by your tenure (as in biglaw), but rather by a combination of objective performance metrics (sales, etc.) and subjective performance evaluations. Many of these jobs will give you a bonus that forms a significant part of your total compensation (>10%, often much more). This also will be based on performance, instead of being lockstep. Same is true of career advancement. If you do a better job, you will be promoted more quickly. If you do a worse job, but not bad enough to be fired, you will get promoted more slowly.

dingbat wrote:
Objection wrote:We agree on that. my original point was that if they're going to rely on hourly models, lockstep is not desirable as an associate, and is pretty deflating to morale (since it makes the only incentive one of "do it or get fired"). Get the associates to want to take their time right along with the partners, and big law would be a much less soul draining job for associates.
But then there'd be much more competition to become partner.


Why is this bad, from a firm's perspective? Sure, the pyramid model dictates that not everyone can become a partner, but it's definitely in your interest to have as many people as possible competing to become partner. People would turn out better work, and the partner pool would be higher quality. Under the current model, you lose some mediocre associates, but you also lose some stellar associates who would have made partner, but just got fed up at some point.

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

Postby dingbat » Sun Dec 02, 2012 8:28 pm

imchuckbass58 wrote:
dingbat wrote:
Anonymous User wrote: there's a minimum acceptable quality that needs to be met, and that's about it. The rest of the time as long as your work is good enough and slow enough, you're fine. Your not incentivized to do anything more than that minimum acceptable quality.
This is true about most jobs. Welcome to the real world.


It's really not though, at least for most professional jobs that are closest to being a lawyer (banker, consultant, accountant, marketing / BD / other roles at large corporations). In most of these jobs, you will get a raise each year. This raise is not lockstep and exclusively determined by your tenure (as in biglaw), but rather by a combination of objective performance metrics (sales, etc.) and subjective performance evaluations. Many of these jobs will give you a bonus that forms a significant part of your total compensation (>10%, often much more). This also will be based on performance, instead of being lockstep. Same is true of career advancement. If you do a better job, you will be promoted more quickly. If you do a worse job, but not bad enough to be fired, you will get promoted more slowly.
I'm not familiar enough with accountants/marketing and don't even know what BD is. I have some knowledge of the consulting world, but not their compensation system (although what I do know is an entirely separate discussion)
However, banking is probably the worst compensation scheme I've ever seen. It's all about what's best in the short term and screw what happens to the future. People literally making bad strategic decisions because it'll improve their next quarterly bonus. Not to mention the internal politics and fucking each other over to get a bigger share of the pool.

I don't know which is better and which is worse, but every pay system has flaws.




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