June 27, 2018
Reverse Auction Pricing
Thomson Reuters recently published an article by consultant Nancey Watson, president of NL Watson Consulting titled, "Mastering the Art of Reverse Auctions and Alternative Fee Arrangements," which discusses Reverse Auction pricing in detail. Here are five key takeaways from the article:
Starting Associate Salaries Hit $190,000
New York firm Milbank, Tweed, Hadley & McCloy LLP has set their first-year associates’ salaries at $190,000, reports the Wall Street Journal. The pay raise is up $10,000 over the previous high of $180,000, set just two years ago. The question now is how many firms will follow Milbank’s lead? “So far, [the only] firms to follow Milbank on raises include Cravath Swaine & Moore LLP, Simpson Thacher & Bartlett LLP, Proskauer Rose LLP and Winston & Strawn LLP,” notes the WSJ article. Simpson Thacher and Cravith even included bonuses between $5,000 and $25,000 to entice students from the best law schools to join their firms.
Milbank is also increasing associate salaries at every level. “Milbank lawyers in their first eight years of practice will get raises of between 4.8% and 6.4% this year. Associates at the top of the scale will make $330,000 a year,” reports the WSJ. In response, Craveth’s top level associates will make as much as $340,000.
“Only a minority of law school graduates land at firms paying top dollar. But law firms compete fiercely to hire that slice of students. ‘We’re only interested in the top of the law-school population generally,’ said Mr. [Scott] Edelman [Milbank’s Chairman]. He said the students they recruit often have offers from between five and 15 firms,” notes the WSJ article.
Many large firms will likely adjust salaries around these new numbers, however, some may do so cautiously. “Greenberg Traurig LLP, which has offices in 29 U.S. cities as well as abroad, sets associate salaries individually based on factors including work ethic, productivity, client needs and local market conditions. It previously has matched New York starting salaries to competitors,” reported the WSJ.
The Overcapacity Problem
Too many lawyers continue to chase a shrinking pool of legal matters for traditional law firms, according to a recent article from Thomson Reuters titled, "Dead Weight and ‘Disappeared Revenue’ – The Legal Industry’s Overcapacity Problem,” by writer Brent Turner. The article calculates about $74,000 in lost revenue per lawyer per year in 2017 versus 2007 (just prior to the Great Recession). That “disappeared revenue” per lawyer translates into over $11 Million for a firm with 150 lawyers or about $26 Million for a 350-attorney firm. “That is the cost of overcapacity – and why some legal industry observers are quite nervous for what may be down the road,” notes Mr. Turner.
The problem, notes Mr. Turner, is that demand has remained relatively flat since 2012, fluctuating between +1% and -1% per quarter. While lawyer growth has been around 2% generally, and recently around 1% per quarter. Even if lawyer growth stays on the recent lower 1% trend per quarter, it will still outpace demand. “[W]hich is why productivity, the end result of the interplay of these two factors, has been on a general downward trend over the last several years and in fact, hit historic lows in Q4 2017,” suggest Mr. Turner.
So, why do law firms keep hiring? Mr. Turner argues firms are trying keep up with their peers. Most firms are growing, so other firms feel they must grow too. Is this a good strategy and what should be done? The simple answer is to cut timekeepers, but the problem is more complicated notes Mr. Turner. The $74,000 in lost revenue is not across the board. Firms must look at each practice group and each lawyer within them to find the real culprits of lost revenue, and purge accordingly.
Cover Letter Mistakes
In a recent article for Ladders.com titled, “Common Cover Letter Mistakes New Job Seekers Make,” writer Jennifer Parris discusses some rookie errors even veteran professionals make in their cover letters. Here are four of the most noteworthy:
Thomson Reuters recently published an article by consultant Nancey Watson, president of NL Watson Consulting titled, "Mastering the Art of Reverse Auctions and Alternative Fee Arrangements," which discusses Reverse Auction pricing in detail. Here are five key takeaways from the article:
- Reverse auctions are simple in theory. Law firms complete RFPs, and then the finalists that are judged capable of performing the task are invited to bid for the work online. Participants can see their competitors’ bids, but not which law firms made them. “The competing firms can then lower their bids while a timer counts down. Typically, and not unexpectedly, the lowest bid wins. That is not always the case, however, because in-house counsel is unwilling to sacrifice quality work, even for the lowest price,” notes Ms. Watson.
- Reverse auctions are more complicated in practice. When exploring whether to participate in reverse auctions, law firms must make sure they understand the project completely and account for all knowable variables. “Firms should break down projects into distinct parts and see whether documents or pleadings can be standardized or are capable of being customized through a document assembly system. It is critical that they do their homework before bidding on a reverse auction, and part of doing that homework is estimating what the competition will bid. When preparing for online reverse auctions, I always recommend that clients do their pricing in advance, know their bottom line and stay within it,” writes Ms. Watson.
- Reverse auctions are becoming more pervasive. “Some companies started using reverse auctions for legal services as early as 2010 and continue to use them almost exclusively for any legal work that is valued in excess of a predetermined dollar amount. This rise of reverse auctions parallels the increasing use of alternative fee arrangements (AFAs). As in-house counsel continue to be under the gun to save costs, it makes sense that a business would engage in competitive bidding for legal services,” notes Ms. Watson.
- Reverse auctions can be valuable for law firms, as well as their corporate clients. “[M]any law firms who have mastered reverse auctions actually like the process because it gives the firms an opportunity to bid on work in true transparency. Firms that have mastered the game of reverse auctions know that they should not go below their bottom line, and that price alone is not always the way to win the bid. Quality of service is still the highest concern for law firms and their clients,” relates Ms. Watson.
- Hourly billing is still important. Although reverse auctions and other alternative pricing methods are increasingly more important to corporate clients... "You may ask, is the hourly billing rate dead? No, work is still being done for many clients on an hourly fee basis, but the percentage of hourly billing is shrinking and being replaced by fees better reflecting what is of value to both the client and the law firm," notes Ms. Watson.
Starting Associate Salaries Hit $190,000
New York firm Milbank, Tweed, Hadley & McCloy LLP has set their first-year associates’ salaries at $190,000, reports the Wall Street Journal. The pay raise is up $10,000 over the previous high of $180,000, set just two years ago. The question now is how many firms will follow Milbank’s lead? “So far, [the only] firms to follow Milbank on raises include Cravath Swaine & Moore LLP, Simpson Thacher & Bartlett LLP, Proskauer Rose LLP and Winston & Strawn LLP,” notes the WSJ article. Simpson Thacher and Cravith even included bonuses between $5,000 and $25,000 to entice students from the best law schools to join their firms.
Milbank is also increasing associate salaries at every level. “Milbank lawyers in their first eight years of practice will get raises of between 4.8% and 6.4% this year. Associates at the top of the scale will make $330,000 a year,” reports the WSJ. In response, Craveth’s top level associates will make as much as $340,000.
“Only a minority of law school graduates land at firms paying top dollar. But law firms compete fiercely to hire that slice of students. ‘We’re only interested in the top of the law-school population generally,’ said Mr. [Scott] Edelman [Milbank’s Chairman]. He said the students they recruit often have offers from between five and 15 firms,” notes the WSJ article.
Many large firms will likely adjust salaries around these new numbers, however, some may do so cautiously. “Greenberg Traurig LLP, which has offices in 29 U.S. cities as well as abroad, sets associate salaries individually based on factors including work ethic, productivity, client needs and local market conditions. It previously has matched New York starting salaries to competitors,” reported the WSJ.
The Overcapacity Problem
Too many lawyers continue to chase a shrinking pool of legal matters for traditional law firms, according to a recent article from Thomson Reuters titled, "Dead Weight and ‘Disappeared Revenue’ – The Legal Industry’s Overcapacity Problem,” by writer Brent Turner. The article calculates about $74,000 in lost revenue per lawyer per year in 2017 versus 2007 (just prior to the Great Recession). That “disappeared revenue” per lawyer translates into over $11 Million for a firm with 150 lawyers or about $26 Million for a 350-attorney firm. “That is the cost of overcapacity – and why some legal industry observers are quite nervous for what may be down the road,” notes Mr. Turner.
The problem, notes Mr. Turner, is that demand has remained relatively flat since 2012, fluctuating between +1% and -1% per quarter. While lawyer growth has been around 2% generally, and recently around 1% per quarter. Even if lawyer growth stays on the recent lower 1% trend per quarter, it will still outpace demand. “[W]hich is why productivity, the end result of the interplay of these two factors, has been on a general downward trend over the last several years and in fact, hit historic lows in Q4 2017,” suggest Mr. Turner.
So, why do law firms keep hiring? Mr. Turner argues firms are trying keep up with their peers. Most firms are growing, so other firms feel they must grow too. Is this a good strategy and what should be done? The simple answer is to cut timekeepers, but the problem is more complicated notes Mr. Turner. The $74,000 in lost revenue is not across the board. Firms must look at each practice group and each lawyer within them to find the real culprits of lost revenue, and purge accordingly.
Cover Letter Mistakes
In a recent article for Ladders.com titled, “Common Cover Letter Mistakes New Job Seekers Make,” writer Jennifer Parris discusses some rookie errors even veteran professionals make in their cover letters. Here are four of the most noteworthy:
- Putting education first – “Sure, you’re proud of the degree you earned from that fancy schmancy school you graduated from, but employers are far more interested in your work experience rather than where you graduated. So, unless it’s absolutely relevant to the job you’re applying for (i.e., the job listing is from your old alma mater), it’s best to include your education on your resume, not your cover letter,” reminds Ms. Parris.
- Saying too much – “In an effort to hide the fact that you might not have all the necessary requirements for the position, you might go on and on … and on … in your cover letter. But rambling does not a good cover letter make, so you still need to stick to keeping it to one page. Write as much as you want in your first draft, and then keep editing yourself until all of your schooling, work experience, and skills are neatly highlighted in well-written paragraphs on a single page. If you can’t decide what info should stay and what should be deleted, ask a friend or family member to help you edit it,” suggests Ms. Parris.
- Not customizing – “Sure, writing a cover letter for each individual company that you apply to is definitely time-consuming. It’s almost the only way, though, to have a solid chance of getting a job interview. Keep in mind that hiring managers read dozens of cover letters each day, and they can tell almost instantly if you’ve crafted a cover letter specifically for their company, or simply copy and pasted the company’s name on a generic cover letter. Take the time to write a meaningful cover letter for each company that you apply for. Tie in your skills with what the job listing requires and, above all, make it meaningful,” notes Ms. Parris.
- Not promising to follow up – “You might have written a killer cover letter, but if you don’t know how to sign off, you could risk losing out on a job interview. In your concluding paragraph, reiterate how much you would like the position and offer real reasons why (like a great company culture or how the job is the next logical step in your career). Then, write how you’ll follow up to see if the hiring manager has any questions. That way, you show your interest and end your cover letter on a professional and positive note,” writes Ms. Parris.
