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Biglaw Pay Hikes: How to Scrutinize Your Company’s Legal Rates

With one of the top US law firms announcing a 12.5% pay hike for their associates, in-house lawyers should be at least prepared for fee negotiations

Cravath, Swaine & Moore LLP — a New York based law firm — cheered law graduates and rattled more than a few general counsel recently by hiking entry-level associate salaries to $180,000 a year, a 12.5% jump. With other firms following suit, Bank of America balked at the news, saying the company wouldn’t absorb new costs because of this (tiered paywall).

It remains to be seen whether outside counsel will try to pass on the bump in their costs by offering corporate clients steeper rates but, regardless, in-house legal departments shouldn’t get caught flatfooted during negotiations.

As well as comparing the rates their law firms are quoting them with the traditional benchmarks (like industry, practice area, and lawyer experience), in-house teams should also look at what their law firms have been doing for them lately.

Hold Law Firms Accountable for their Past Performance

Very few legal departments bother to formally evaluate the quality of their law firms’ work. And those that do rarely use measures that reveal outside counsel’s contributions as a business partner. One unfortunate result of this is that departments pay top-dollar for work that is poor quality because it does not align with their unique priorities as a department and organization.

To encourage law firms to provide better work and compete with each other to be the preferred partner, the legal team at one global maker of home appliances in CEB’s member network of legal teams developed a more comprehensive set of metrics to measure this sort of “business alignment.”

The team’s new crop of measures went beyond the more traditional, superficial group (like cost of service and speed of resolution), and directly sought out more helpful information (like the law firm’s clarity of communication and operational efficiency).

After rating each of their law firms on these more business-focused criteria (using an outside counsel evaluation form), the legal team sent out an annual scorecard of their performance (see chart 1).

Outside counsel scorecard

Chart 1: Outside counsel scorecard  Illustrative excerpt, internal version  Source: CEB analysis

Every one of the company’s providers received these compiled results, including those of their competitors. This helped law firms understand where they needed to improve.

Further, it encouraged a conversation about service quality that both parties might otherwise have avoided—for fear of damaging their relationship, or having an awkward discussion about performance issues.

More On…

  • Maximize Outside Counsel Quality

    While legal departments spend 55% of their budgets on outside counsel, most are dissatisfied with the quality of work they receive. Learn how to improve it.

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