f/k/a . . . the archives

February 26, 2009

crushed by clocks? insulted by intervals? [ALF#4]

Filed under: lawyer news or ethics,viewpoint — David Giacalone @ 12:10 pm

.. They’re peeved over time-based pay . .

note: this is #4 in our final week’s ALF Series on American Legal Fees; click for #1; #2; #3 . . and see our valedictory fee essay, “Understanding and Reducing Legal Fees“.

It’s my last week of posting, so I’m going to indulge myself and discuss a pet peeve or two of mine involving the rhetoric of lawyers and consultants who dislike (and often scapegoat) the billable hour.  Rather than sticking with logic, reason, or economics, they often employ hyperbole, overkill, psycho-babble, Straw Men and class warfare (not to mention ridicule).  As discussed below, they even insist that being paid by the hour demeans a lawyer.  Please.

Thus, as mentioned last week, Ron Baker’s acolyte and echo Christopher Marston recently insisted that “there is not a single customer that wants to buy an increment of our time. Increments are excrement.”

Of course, I’m not an excrement expert (and Mr. Baker has accused me of ranting and raving and being “someone who lacks a rudimentary understanding of basic economics.”), but the not-buying-time cliche is just a silly Straw Man.  The client who pays by the hour, like anyone who employs a lawyer to do legal services, “wants” the lawyer to apply his or her legal knowledge, expertise and experience to the client’s problem or project.  Hourly billing is simply one way to compute compensation in a situation where the buyer does not employ the service provider exclusively (and the amount and type of services needed may not be reasonably discernible in advance).  As Prof. Jeffrey Lipshaw recently wrote:

“The real question is whether, overall, the total price approximated by billable hours is an acceptable surrogate for the value to the client. . . . [M]y intuition as a former buyer and seller is that the overall acceptability of the surrogate is indeed revealed by the overwhelming instance of its use in the market.”

Similarly, Steven Matthews pointed out at slaw.ca last year, in “The Economist: Killable Hour” (September 1st, 2008):

“Neither party seems to care that much about the billing model. Cost certainty? yes. Getting value? yes. Those are worth fighting for, but method of billing? If clients or firms were demanding changes, wouldn’t we have seen it by now?

“The push-pull between clients & firms when negotiating price (and understanding costs, for firms…) is going to exist in either scenario, and frequently depends on the situation. Think: area of practice, work volumes, the substance & length of client-firm relationship, average time for matter execution, and so on. But rather than describing this balance to readers, the sensational prevails – pitting one billing model against the other in a full-on death match! I suppose it’s not sexy to say ‘different clients & matters may require different billing models’. A shame, really.”

At times billing by the hour is a reasonably good measure of the value of those services, and at times it may not be.  More price competition is needed for hourly rates, and abuses need to be eliminated, along with excessive quotas imposed on lawyers by their firms.  But, hourly billing is clearly not an inherently irrational, exploitative or unethical method for calculating price.  By painting hourly billing as the benighted source of all evil, proponents of alternative pricing methods hurt their credibility — especially, when they fail to acknowledge there are incentives inherent in every pricing method that could lead to unreasonably high (or low) fees. (see e.g., ALF#1; and our post “broadening the hourly billing debate“)

.. Mauled by Marxism! Demeaned by Da Man! Ronald J. Baker (see prior post), the guru of “value pricing” and ceaseless crusader against hourly billing, isn’t content with his price sensitivity charts and promises of higher fees in his quest to convert lawyers and accountants from the Almighty Hour.  Ron motivates poor downtrodden professionals with his brand of class-based snobbery.  He urges them to rise up to capture their true (higher) value by labeling hourly billing as Marxism, and contrasting his superior “knowlege workers” with mere “cattle,” “union workers,” “blue collar occupations,” and those who “work with their hands” rather than their heads, and are stuck laboring by the hour (see, e.g., here and there).

Meanwhile, the usually level-headed and clear-minded Bruce MacEwen of Adam Smith Esq, recently evaluated the billable hour (in “The NYT‘s Obit for the Billable Hour“, January 31, 2009).  Included in Bruce’s “Con the billable hour” list is this factor:

It’s dehumanizing, reducing talented and highly educated professionals to fungible units as factors of production.

In addition, conflating the issue of hourly billing with the problem of the grossly excessive billable hour quotas imposed by many firms, Bruce goes on to say: “Lawyers have every incentive to work day and night, and no incentive to recharge their batteries . . . We can debate whether, in the long run, this will produce pale and narrow automatons or whether utter and uncompromised dedication to a profession, 24/7, is the only route to serious excellence, but the point is that decision should be made by each individual with free will unfettered by the hands of a stopwatch.”

The greed that has led to over-blown billable quotas is a separate issue from the appropriate use of hourly billing to arrive at fees.  Indeed, as we said years ago in the post chronomentrophobia, “from the perspective of the overworked associate or partner, there is nothing wrong with the billable hour fee system that is not very likely to be carried over to any alternative billing arrangements, so long as the firm expects the shift to be made without reducing its income or profits, and the lawyer expects the same income.

In a nation where the vast majority of both blue and white collar workers receive their income based on intervals of time (hour, year, week, etc.), is being paid based on time expended really a demeaning remnant of Marxism?  That’s silly, at best; unseemly manipulation, at worst.  Many of the most talented and respected people I know are paid according to a clock or calendar.  And, many members of the public (myself included) believe that a larger percentage of “blue collar” workers than of lawyers perform truly valuable services.

Consider:

  • Most of us would not be the least bit insulted if an employer or customer wanted to hire us on an exclusive basis for a year, a month, a week, or as long as a particular project took, and offered to pay us based on an appropriate interval of time.  We might want to suggest an alternative way to calculate our compensation (e.g., a flat fee, adding bonuses for success, splitting profits), but we would not be insulted.
  • Why does it become demeaning then, when someone who will not get your services or time exclusively — because you will also be working for other clients or employers — suggests compensation based on hours worked?  In two words: It doesn’t.  Period.

By the way, even when a law firm is being paid under a “non-demeaning” alternative method of pricing, I bet their associates are getting paid based on an interval of time.

It’s naptime.  I’m setting my alarm clock.

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