Taxation & Estate Planning

More on Attorney Fees and Billing Arrangements

By Joel A. Schoenmeyer

I wanted to follow up on my recent post regarding alternative billing arrangements.

I think it really comes down to this: in the past 10+ years, when the economy has been good, attorney hourly rates have skyrocketed. Each year associates traditionally receive raises as they goes from being a 1st year to being a 2nd year, a 2nd year to a 3rd year, etc. In addition, in good times salaries also have increased significantly for 1st year (i.e. fresh out of law school) associates. Allow me to show my age: when I began practicing in 1996, starting salaries for 1st year associates at large law firms in Chicago were around $70,000. They are now more than double that amount (around $145,000), so 1st year salaries have gone up by more than 6% per year on average over the past 12 or so years.

Law firms can pay for rising associate salaries in one of two ways: by making their partners pay, or by making their clients pay. Can you guess which one of these ways is most often used by the people who run law firms? That's right -- good economic times means higher associate salaries means higher billing rates. What I'm curious to find out is whether bad economic times will mean lower billing rates. We can dance around alternative billing methods all we want, but isn't this really what clients are looking for? In good times, maybe you'll pay $500 per hour for legal expertise. But in bad times, maybe you'll only pay $400 per hour (or even less).

Full post as published by Death and Taxes Blog on February 17, 2009 (boomark / email).