Rock-Star Law Firms Are Billing Up to $2,500 per Hour. Clients Are Indignant.
Companies complain about rising legal bills. ‘It’s not sustainable,’ says one general counsel.
Big companies around the world are pushing back against rapidly rising legal bills, railing against hourly lawyer rates they say are the product of law-firm excess.
Lawyers’ hourly rates rose almost 9% in the first half of 2024, according to data from Wells Fargo legal specialty group, which surveys large law firms quarterly. That’s on top of an 8.3% increase in rates last year. Historically, fees would rise about 4% each year, Wells Fargo says.
Lawyers’ pay is skyrocketing. Brutal poaching wars for talent are now common, and top lawyers expect to be paid like investment bankers and private-equity principals.
“You don’t negotiate with those guys. You aren’t going to bet the company,” said Matthew Lepore, general counsel for chemical giant BASF. “Clients aren’t doing as well as the law firms are doing, and it’s not sustainable.”
In certain specialties, such as merger counseling, regulatory compliance, tax and private equity, corporate general counsels say there is only a small pool of firms to choose from. Companies venturing into high-stakes deals turn to the most elite firms, with the hopes that the high price tag promises the best outcomes. Hourly rates can run $2,500 or more for the most sought-after attorneys, and are expected to keep rising, according to legal recruiters and court filings.
“The market is driven by the top end. The top firms are spending money to compete for the best rock-star talent. That’s what is driving this,” said Alan Tse, chief legal officer at global commercial real-estate firm JLL. “Obviously not enough of us are saying no. Clients are part of the problem.”
Paid more than bankers
The top law firms have grown in size and seen their revenues shoot upward as they’ve become one-stop shops for corporate clients for deal work, litigation, and tax advice. The legal industry has shifted its compensation structure, and only a few firms still have a classic lockstep pay system that rewards based on seniority. Instead, firms pay up for stars and based on productivity. The flexibility increases the cost of talent.
Law firm revenue growth was up 11.4% in the first six months of 2024, outpacing expenses, according to a Citi Global survey of top law firms.
Superstar attorney hires can command salaries of as much as $15 million to $20 million a year, eclipsing even the Wall Street bankers, lawyers, consultants, and legal recruiters say. Beyond that rarefied level, many lawyers have seen their pay double in recent years. At the lower end of attorney pay, junior associates at large law firms can start at $250,000 a year. That’s about a 30% jump in five years from the starting salary of $190,000 in 2018.
Law firms traditionally charge companies by billing rates per hour, and the firm will be hired for a project or issue and then charges based on how much time it spends on the project. Inside the firms, associates and partners are often judged based on the billable hours they produce, as well as the outcome for the client.
To bring down legal costs, companies are pitting firms against each other for more competitive bids and moving work in-house to their own legal departments.
At beer maker Heineken, general counsel Ernst van de Weert has moved some legal work away from large firms to smaller boutiques.
“You can get the same kind of quality for half the rate,” he said. “You have more choices than you realize.”
Indeed, rates are increasing fastest at the top firms. Fees at the top 50 law firms rose 10% in the first half of the year, compared with about 7% for the next tiers, ranked 51 to 100, and 100 to 200, according to Wells Fargo.
Lawyers at the nation’s largest firms billed between $500 to more than $1,300 per hour for litigation in 2023, according to the National Association of Legal Fee Analysis. It can be higher in other markets.
In New York City, mergers and acquisitions are the most expensive area and many top-ranking firms have partner rates that exceed $2,000 an hour, and can be as high as $1,000 for associates, according to Persuit, a software company that in-house counsel uses to control hourly rates.
It’s increasingly a bifurcated market, with the top firms with large corporate practices such as Wachtell Lipton; Kirkland Ellis; Paul Weiss; Davis Polk, and Simpson Thacher moving away from the pack. Several of the largest firms have poached entire practice groups from each other, luring recruits with significant boosts in pay. But at the same time, the work of some of this rarefied talent can draw tens of millions to hundreds of million in revenue for the firms.
“The game is to get as many stars as you can because it helps to lock in business,” Paul Weiss chairman Brad Karp said.
Fighting billable hours
Companies are increasingly pushing alternative fee arrangements. They’ll cap the fees, fix rates to avoid runaway costs, or make a deal to give the firm an incentive to win with a “success bonus” guarantee. They’ll put out bids for work and have firms present their best offers that include proposals to keep costs somewhat at bay.
Some clients are trying to keep down their own hourly costs by being thoughtful in how they use outside firms. “It’s all too easy to go to speed dial, ‘Bob, help!’ Then the clock starts before the phone is put down. As a client, you have to be more disciplined,” said Ashley John, head of legal operations at British mining conglomerate Anglo American. The company, owner of diamond retailer DeBeers, works with 15 to 20 law firms around the globe.
Frank Ryan, global co-chair at DLA Piper, one of the top law firms, said the world has become more complicated for businesses. He pointed to the explosion of private equity in the last decade, which has been a boon for firms who represent financial firms and advise them on multibillion-dollar mergers. This creates work on both sides of a deal for law firms. He also said the aggressive regulatory environment and complex intellectual property matters create more opportunities for specialized legal work.
“There are some firms that are always in a general counsel’s Rolodex, there’s no question,” Ryan said. “The world has gotten smaller in a way, but that creates more opportunity for law firms.”
Advancements in generative artificial intelligence could change the economics of law firms, with many firms testing the tools to handle work such as summarizing legal filings that is the purview of junior associates. AI should lower costs and increase efficiency, legal department heads said.
Shell sent a letter in June to outside firms the energy giant was considering hiring. Its work wasn’t guaranteed, “as we constantly test the market for efficiency and cost effectiveness,” according to a copy of the letter from legal director Philippa Bounds reviewed by The Wall Street Journal. It asked the firms to explain how they are using generative AI tools, saying that the firms “that develop into that fertile ground” and are clear about how they are using it will have a competitive advantage.
Shell tries to avoid the hourly rate model in general, arguing it provides little incentive for attorneys to work quickly. Shell’s head of legal operations, Gordon McCue, has pushed firms to use alternative fee arrangements so that Shell has a predictable and transparent rate in the final legal bill.
“There could be a tendency, conscious or unconscious, to not want to be that much more efficient because the hourly rates are massive,” McCue said.
“This doesn’t solve the problem,” McCue said. “It’s up to the companies to push for change.”