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For the second year in a row, salaries at Texas firms increased by very little on average, according to Texas Lawyer‘s annual Salary & Billing Survey. Forty-six firms responded to this year’s survey. Survey averages revealed salary increases ranging from 2.6 percent for paralegals with one to three years’ experience to 6.7 percent for personnel managers. Associates fared about the same. Survey averages ranged from a 1.7 percent increase in seventh-year associate salaries to a 4.8 percent increase for fourth-year associates. “The economy has flattened out on us, keeping salaries and billing rates relatively level,” says George Casbeer, executive director of 91-lawyer Cox & Smith, based in San Antonio. Charles Post, executive director of 66-lawyer Susman Godfrey, based in Houston, agrees. “We have an [associate salary] schedule and have not modified that schedule for several years. With regard to staff, there are some positions that there’s still a strong market for — IT people, for example. We’ve given modest raises. In general, the economy has kept salaries fairly tight.” The statewide average annual salary for information services managers totals $92,413 this year compared to $87,528 last year — a 5.6 percent increase. Salaries for legal secretaries with one to three years’ experience who work at firms with 50-99 attorneys show a 20.4 percent pay increase due to one responding firm’s need to dramatically raise salaries because it says it was paying below market rates for that position. Attrition rates account for modest salary increases, says William Cobb, president of Houston’s Cobb Consulting. “A lot of big firms have lost people through attrition,” he says. “When you’re laying off people, there is very little pressure to increase compensation because people are more worried about keeping their jobs instead of having their pay increased.” However, long-term commitments are important for continued success in firms, Post explains. “When you hire good people, you do so with the idea that you’re hiring for the long term. You don’t want to hire good people and turn around and let them go.” Firms such as 290-lawyer Gardere Wynne & Sewell, based in Dallas, gave raises in 2002 that reflected normal cost-of-living increases, says managing partner Stephen Good, and he expects this year will be no different. While controlling costs always is important, firms need to be careful not to throw the baby out with the bathwater, Casbeer says. “Because you’re in a slowdown, you can’t stop advancing technology or training,” he says. “We’re continuing on with the plans we’ve had over the last three years. In the long haul, we know the economy will come back around. We’re not going to scrimp on training and technology for today’s dollar where we’ll regret it three to four years down the road.” Commitments to technology don’t come cheap, Post says. It’s an important long-term commitment. “You don’t just fire computers if you let attorneys go,” he says. Improved technology affects staffing ratios — with decreases and increases in personnel. Over the past 10 years, most firms saw a decrease in secretaries, using ratios of two to three attorneys per secretary, rather than the old scenario in which each attorney had his or her own secretary, Post says. On the other hand, there has been an increase in technology staff, Post says. Other staff increases result from better management practices, Good says. “Managing a law firm has become much more professional,” he says. “We’re more centralized, for better or worse. We’re managed by a professional staff with the involvement of a lawyer-management committee. That lets attorneys focus on their legal practice and taking care of their clients. Management of law firms has gotten very complex. We have CFOs, executive directors, an HR director and marketing directors. We rely on those people to do their jobs.” Management strategies don’t change with the economy, Post says. Neither does the demand for legal services. “A certain amount of legal work is going to be done in this country irregardless of the economy,” he says. “In boom times, corporate clients want deals structured, and your IP department may get busy because [your clients are] running out new products. When things slow down, litigation comes to the forefront and your corporate work drops off.” BILLING RATES Survey averages reveal billing rate increases ranging from 3.9 percent for senior paralegals to a 6.2 percent average increase for first-year associates. Individual markets report higher increases in some categories. Responding Houston firms raised average billing rates for non-equity partners from $243 an hour to $267 an hour — 9.9 percent higher than last year’s rates. Firms in the 30- to 49-attorney category report a 15.7 percent average increase in billing rates for seventh-year associates — up from $204 an hour in 2002 to $236 an hour in 2003. Responding firms in those categories note these rate increases reflect a need to make rates more comparable with their Texas competitors. Clients are extremely sensitive to rate increases in a downturned economy, Cobb says. “Law firms have to compete for corporate business now,” he says. Corporations can play firms against each other. This makes it a buyer’s market. They’re putting enough pressure on firms so they can use their buying power to decrease rates.” Cobb believes corporations often bargain for rates lower than the standard rates quoted at the outset of a project. Good says he sees a little of this bargaining but not a lot. Cobb says many general counsel tell him that they don’t mind paying high rates for senior partners because they know experienced attorneys will produce innovative results in a short time frame. However, those same general counsel don’t like paying high hourly rates to less experienced associates, Cobb says. “Obviously, in this economy, everyone is concerned about billing rates,” Good says. In particular, corporate clients, Post agrees. The important thing for clients is that they see fair bills for the services provided, says Daniel Elder, president of 55-lawyer Matthews and Branscomb, based in San Antonio. “We don’t compete on the basis of our fees,” he says. “We compete on the value we provide. If a client is coming to you solely for a cost basis, that’s probably not a client you want to do work for.” Good agrees. “Clients are paying for expertise. They want to know they’re getting overall value. I think it’s a matter of having people work on things efficiently.” Efficiency requires responsible attorneys, Elder says. “Bills have a relationship with the work produced. If it’s lower-end work, we don’t give it to a senior-level person. It requires appropriate staffing. We try to hire responsible attorneys that are sensitive to the costs of the project.” Detailed hourly billing statements protect the client, says Richard Rose, managing partner of 55-lawyer Coats, Rose, Yale, Ryman & Lee, based in Houston. “I think a client would be pretty stupid if they didn’t ask for detailed billing. There are some attorneys who would take advantage of that. There’s a tendency to put multiple attorneys on projects.” However, hourly billing structures place a client in the role of auditor, Cobb says. “They have to call and ask why something was done and then the attorney tends to cut the bill. … Law firms have to learn to build in processes where they can improve their efficiencies.” ALTERNATIVE BILLING Firms responding to this year’s survey report an increase in the use of alternative fee structures, such as flat fees, contingent fees, discounted billing and performance-based bonuses. This year, 48.9 percent of firms using alternative fee arrangements preferred flat-fee billing. This makes sense because clients want an idea of how much legal work is going to cost, Cobb says. It’s like any work. You wouldn’t turn your garage into a recreation room without some idea of the estimated cost. “Flat fees force firms to be more effective and efficient,” he says. “That’s what clients want.” Gardere is looking at the use of flat fees, Good says. “Clients are concerned about their legal fees. We’re trying to be as efficient as we can. And law firms generally haven’t done a very good job of that.” The use of flat fees means constructing a budget with your clients, he says. Having fixed fees means the work is based on us doing certain things and the client understanding that having to do additional work will cost more, he says. That’s part of becoming more efficient, Cobb says. “Firms need to build a list of items that would kick portions of the work out of fixed-fee pricing and into hourly billing.” Others, such as Rose, believe clients get better value from hourly rates. “The only way to protect yourself [when using flat fees] is to price the fee high enough to make sure you cover yourself. Most of the time that fee is going to be higher than the hourly rate would be,” he says. Most consultants and many lawyers want to move away from billable hours, Elder says. Clients deserve accurate estimates so they avoid “sticker shock” at the end of a project, Elder says. “The billable hour will be difficult to move away from,” Elder says. “Lawyers [will] have to become adept at estimating. And lawyers will need to take some risks. “However, in return for certainty in fees, clients will have to assume some risks too in the use of flat fees because firms deserve to be rewarded if they are able to do the work more efficiently than estimated,” he says. Notes Elder, “The flat fee should be an amount that reflects the value of the work to the client and, therefore, the number of hours it takes to complete the project should only be relevant to the law firm.”
Salary and Billing Charts Hourly Billing Rates Average Hours Billed Per Week Administrative Services Salaries Legal Secretaries’ Salaries Support Staff Salaries Timekeepers’ Salaries
Survey Methodology Each year, Texas Lawyertracks financial trends in the state’s legal industry through its Salary & Billing Survey. The report compiles and analyzes information provided by firms of different sizes and practice areas across the state. The firms respond to questions on employee salaries, billing rates, billable hours and other expenses. Because of the variations in how firms track their data, these results are not definitive, but they do provide valuable comparative material for firm managers and employees. Forty-six firms completed the survey this year. The results are analyzed by city and size. Firms are divided into four categories by city: Austin/San Antonio, Dallas/Fort Worth, Houston and other. The size divisions are: 100+, 50-99, 30-49, and less than 30. The firms that responded to this year’s survey also provided 2002 figures. To be added to Texas Lawyer‘s e-mail survey list, contact associate editor Lisa M. Whitley at [email protected].

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