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The Shift: With Rising Associate Pay, Client Feedback Takes on New Significance
When law firms succeed, it's a matter of listening to clients’ demands and business opportunities. That’s why law firms’ client feedback interviews are known to be so imperative.
And in an age of associate pay battles in Big Law, it’s even more critical to have these client feedback discussions—not just on current case performance, but a range of elements in the client relationship, including billing.
But how much detailed discussion did law firms have with clients about billing rates and pricing in 2021 after firms matched associate pay within hours or days of a new scale on the market?
The new associate salary scale appeared to catch some general counsel off guard. So far, corporate legal department reaction to increased associate salaries have been mixed, with some general counsel and in-house observers calling the pay raises “tone-deaf” or wondering if the pay raises will actually lead to billing rate changes. .
The Conversation
Yes, some law firms that raised associate salaries this year insisted it would not cause a hike in billing rates.
For the elite and most profitable firms, that math makes sense. They added tens of millions in net income last year and could do the same this year, thanks to a record six months of deal value and volume. For some of the most profitable firms, associate salaries and special bonuses likely amounted to less than 10% of their profit gains last year, and they won’t need to raise billing rates in 2021 more than they usually do.
For other law firms that raised associate salaries, including those in the second half of the Am Law 100 and in the Second Hundred, it’s not clear how they will be able to turn a profit and match the increases in associate salaries and bonuses—unless these firms were counting on significant increases in revenue in 2021. Some of that could be tied to higher demand, or some may be the result of rate increases.
Will firms that felt forced into associate pay raises be more willing to consider higher-than-usual billing rate increases to help cushion their profits, especially if they can’t make up for it by increased demand? It’s undoubtable.
The Significance
Firms weighing the balance between billing rate increases and associate pay matches are caught in a catch-22. They may lose valuable associate talent if they don’t match, but losing them now may have an immediate hit on profits. If they do match, they could cut pay for partners as a result of lower profitability, raise billing rates more so than normal or a combination of these options or others.
That’s where client feedback and communication comes in. General counsel and chief legal officers extensively speak of the preference for predictability in fees, so there are no big surprises in a legal bill.
But clearly, surprises still happen. Ken Callander, a legal department consultant at Value Strategies and former head of legal operations at Uber, said some of his clients are seeing associates bill at $1,000 per hour. “Their jaws hit the pavement when they see that,” he said.
The general counsel of a financial services company, who asked not to be named, said, “It wasn’t of too much consequence or import to us if firms don’t attempt to pass the cost through to clients in the form of higher rates. But even if they say they don’t/won’t, clients may tend to wonder.”
Indeed, the firms below the market elites operate in a more price-sensitive market, law firm consultant Tim Corcoran told The American Lawyer. “Clients may not only notice, they may express their frustration and concerns” about associate pay increases, he added.
At a time of large associate pay raises, it’s even more important for law firms to stay in close communication with clients for feedback on billing and answer questions on surprise costs. It’s easy for minds to wander and question whether any pay increases were planned in advance or the result of the associate pay battles going on now between big firms.
The Information
Want to know more? Here's what we've discovered in the ALM Global Newsroom:
For more information on the Legalweek(year) virtual experience, visit legalweekshow.com or follow @Legalweekshow and engage with #Legalweek21 and #Legalweekyear for updates. The Forecast
How firms below the market elites that matched associate pay increases communicate with clients will be key to how their client relationships develop in the long run.
Experts on client feedback, both within law firms and working for third parties, say that periodic check-ins that aren’t tied to any particular matter can yield invaluable immediate benefits for a particular relationship.
Those firms that explain their reasoning to clients for associate pay raises—or keeping pay flat—and explain how they could afford any changes are less likely to disrupt client relationships. And if they don’t explain? It’s easy for a GC to try to connect the dots between a firm’s pay raise memo leaked to the press and a whopping legal bill.
Christine Simmons is an editor for business of law news and also writes about the New York legal community. Email her at csimmons@alm.com and find her on Twitter @chlsimmons
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