A recent American Lawyer story, “Billing $2K an Hour? Study Says Clients Will Pay If Lawyers Deliver,” reports that the top rates paid to the highest-paid partners at U.S. firms rose to a jaw-dropping $2,000 an hour last year, a 25 percent increase over 2014’s top rates, according to data released by BTI Consulting Group.
The $2,000-an-hour hourly top rate, up from $1,600 in 2014, applied to “more than a handful” of the survey’s 322 in-house counsel respondents, according to BTI Consulting’s Michael Rynowecer, president and founder of the group. Even more were clustered around $1,900 an hour. “Yes, they’re outliers, but they’re not exceptions,” Rynowecer said.
Meanwhile, the average highest hourly rate reported last year by respondents—$982 an hour after all discounts—rose too, though not as fast; top rates were 8 percent higher on average than the 2013 average of $909, BTI found. And 59 percent of counsel at large companies paid at least one firm $1,000 an hour in 2015, compared with 39 percent a year earlier.
The information was collected via interviews last year with counsel at companies grossing at least $1 billion. Unlike surveys of law firms, the findings represent what clients actually paid out, rather than what firms billed.
While BTI’s survey examined the highest rates, several others routinely analyze average rate increases among all timekeepers. In contrast to BTI’s findings, those studies show much slower growth in billing rates during the same time frame.
Citi Private Bank’s Law Firm Group, for example, reported that large corporate firms’ average hourly rate growth actually slowed last year from 2014; rates rose 3.1 percent in 2015, down from 3.4 percent in 2014. And Wells Fargo Private Bank Legal Specialty Group in December found that Am Law 100 firms were raising their across-the-board “rack rates” by 4.3 percent in 2016, according to managing director Jeff Grossman.
Law firm management consultant Peter Zeughauser said that once partners broke through the psychological barrier of $1,000 an hour in late 2009, he predicted that rates would quickly surge to $2,000 and beyond. The next psychological barrier? Perhaps $3,500 or even $5,000 an hour, according to Zeughauser. “As soon as they breached $1,000, it was ‘Katy, bar the door,’” he said. “You just can’t hold rates back.”
Skyrocketing rates, Zeughauser noted, are partly a sign that stratification in the legal industry is increasing. “There’s less and less price sensitivity on the go-to work,” Zeughauser noted. “People will pay a lot for an attorney who can get a great outcome in an extraordinary matter.”
On the flip side, the downward rate pressure on more commoditized work is relentless, Zeughauser said. He said that one firm told him that a bank client recently asked it to extend the bank a 35 percent discount on all of its less-sensitive work.
While the market for legal services remains constrained in general, “the best rates are going to fewer lawyers, and that’s why rates are going up so fast,” said Wells Fargo’s Grossman.
Still, a few elite firm leaders expressed disbelief at the top rates cited in the report. “I’m stunned,” said one Wall Street firm member of management who asked not to be named. Rates at his firm topped out several hundred dollars below the $2,000 hourly rate in the report, he said.
“It seems crazy and out-of-market,” he added. “I understand in theory that clients care less about paying top rates to top partners, but in reality there’s something very symbolic about the top number.”
Who were the lawyers commanding those $2,000-an-hour rates? In-house counsel cited the recipients as their most trusted senior lawyers. Though BTI found that the top partners commanding the highest rates were clustered at the largest law firms, they also found partners fetching similarly high rates among some midsize and smaller firms. BTI’s Rynowecer noted that the highest-rate billers include both litigators and corporate partners.
Driving the rate increases, he said, is a threefold increase in bet-the-company matters compared with 2014. More than a third of counsel reported dealing with a high-stakes matter, up from 12 percent a year earlier. “There’s a bull market in this more complex segment of the market,” said Rynowecer.
Specifically, clients most frequently cited paying top dollar for senior partners in the defense of high-stakes activist shareholder actions or in antitrust showdowns with regulators and with rivals, matters that surged along with a record $5 trillion in announced megadeals last year. A few respondents also mentioned that they faced critical IP litigation involving core proprietary technology.
“While every law firm wants to be at the top of the market, we found consistently in most cases, the top legal decision makers knew exactly who they wanted to hire when a big matter came up,” Rynowecer said. “What we found is that these firms who are so good at getting the work just treat the client with overarching commitment to understanding their business, and to being in a constant dialogue with them.”