January 19, 2006
Blended Rates Can Play a Useful Role for Law Firm and Client
Playing off the lyrics of a Randy Newman’s song, I once wrote that "blended rates got no reason”. Blended rates never made sense to me. I just didn’t understand how they could benefit anyone.
I was recently in a law firm where some partners tended to make significant use of associates while others attorneys tended to horde the work. Some of the firm’s clients were paying for associates to do associate work. Others were paying partners to do the same level of work. The motive for hording work in this case was another illustration of the untended consequence of a compensation plan. The originating attorney who did his or her own work made more money under the compensation formula by not delegating their associate-level work. The client was incurring a higher cost than might have been necessary. The attorney doing his own associate-level work was not out stirring up more business. The firm had unutilized associate time, etc.
In this case, proposing a blended rate might add encouragement for the attorney to move work to the associate and spend more time looking for higher-valued work. The firm would increase its effective rates for associate work. The client would experience a lower cost. The attorney would devote more time to rainmaking. Everyone would be a winner!
Of course, an even better alternative would be strong law firm management. Without that, one has to constantly tweak the compensation formulas and pricing strategies to encourage good practices and discourage poor ones.
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Filed under Alternative Billing, Compensation by Tom Collins