This post was coauthored with Joel Surdykowski.
You see the word on firm websites, in attorney bios, on billboards: “Experienced.” You should hire me because I am an experienced litigator. You should hire my team because we have a combined X years of experience. “Experience you can trust.” But how much is all this experience worth? Is an attorney with 20 years of experience twice as good as one with 10, or what?
Wolters Kluwer pricing data suggests that the answer is no. The relationship between hourly rates and years of experience is a nonlinear one and varies depending on practice area and other factors.
Here is a quick discussion of the patterns we see and how to use them.
Pattern 1: Attorneys increase their value substantially by getting more experience, but the trend isn’t equal across all practice areas
Our pricing data shows that in the last three years corporations have paid between 19 and 27% more per hour for senior associates with more than six years of experience than they are willing to pay for junior associates who have between three and six years. However, that’s true only if those associates are working in the corporate, employment, or finance and securities practice areas. In contrast, associates doing bankruptcy and collections work were paid as little as 2% more for their extra years of experience.
Why would this be? It is hard to know for sure, but one possible explanation comes down to supply and demand. Regardless of how much better senior bankruptcy and collections attorneys are at their jobs, if there is a market surplus of them, they might hesitate to ask for higher fees lest they alienate the client. Bankruptcies have continued to decline since their post-crash peak in 2011 and rather than leave the market altogether, experienced bankruptcy attorneys may be choosing to hang in there and wait for things to get better, glutting the market with talent.
Pattern 2: Experience allows attorneys to charge more, until the learning curve plateaus
In most practice areas, a junior associate who becomes a senior associate will see higher increases than would a junior partner who becomes a senior partner. Even in real estate—the practice area where additional years of partner experience were most valued—senior partners (more than 21 years of experience) were paid on average only 18% more than junior partners (less than 21 years of experience). That rate of increase is middling at best when compared to the rate of increase associated with timekeepers transitioning from junior to senior associate. This suggests that, on average, each additional year of timekeeper experience has diminishing returns.
One explanation for these diminishing returns may be that the learning curve is steep in the beginning, then plateaus. So, you absorb a lot in your early years, but as you approach senior partner, there is much less to absorb. You have reached such a high degree of technical mastery of your craft—and perhaps even in your ability to lead a legal team—that your clients don’t believe you can get much better. They pay accordingly.
While it is speculation, the “experience premium” might taper off more quickly in areas that are more “process-oriented” in nature. Not to beat up on bankruptcy and collections (one of the authors of this article used to be a bankruptcy attorney), but some of that work can be fairly repetitive. Reasonable clients could conclude that in these practice areas attorneys hit the height of their abilities relatively early, and beyond that point, they are not interested in paying more. You might continue to grow in experience, but not necessarily in ability.
So what is a legal department supposed to do with this information?
- Have a rational rate management process. The first thing you can do is be aware of the facts described above and adjust your processes accordingly. Some corporate legal departments benchmark requests for timekeeper rate increases against the national rate of inflation, which is typically about three percent. However, unless you think that changes in the price of milk are highly correlated to changes in attorneys’ fees, that viewpoint probably doesn’t make sense.
- Benchmark against your own historical rates. The rational process you develop should include some kind of rate benchmarking against a data source. Benchmarking against internal historical rates can be valuable because your organization knows the timekeepers involved, knows whose work is of higher quality, and knows the details of the work being performed. This is easiest if your department has a strong metrics program in place.
- Benchmark against external data sources. Benchmarking against external data sources like the Wolters Kluwer’s ELM Solutions Real Rate Report® is also valuable, and can be a sanity check if your organization has gotten into the habit of overpaying. Previous ELM Solutions analyses have shown that the same lawyer often charges different clients different rates, and it isn’t always because one client is getting a “volume discount.” The bottom line is, not all clients have a vigilant attitude towards rates, and the ones who don’t are subsidizing legal costs for the ones who do.
- What not to take away. The statistics quoted above concern the average (median) increases in hourly rates that coincide with increases in years of experience. However, some practice areas, like real estate, show fairly dramatic variation around this median. That means some real estate attorneys, probably due to the nature of their practice, can demand large increases while other real estate attorneys have to settle for less. Therefore, do not over-extrapolate from the averages described above.
It's best not to make any assumptions about value. Looking at the data may tell you that the work you’re pricing out, in a particular work area, may not require you to pay a premium for a more experienced attorney.