Would you pay $1,000 an hour for this man’s time? The best legal talent doesn’t come cheap—here’s why lawyers make what they do, how they make partner (or don’t), plus the top 1 percent of the area’s 80,000 attorneys.
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“Where’s my photo with Sandy?” shouts Robert Bennett as he searches for a photo from a fishing trip with former Supreme Court justice Sandra Day O’Connor.
His secretary has bad news: She doesn’t know where it is.
“It should be here,” he insists.
Legendary litigator Bob Bennett moved into this 11th-floor corner office at Hogan & Hartson a few weeks earlier, after spending 20 years at Skadden, Arps, Slate, Meagher & Flom. The memorabilia on his shelves attest to his storied career.
In one photo, he stands next to former Defense Secretary Caspar Weinberger. “That was after the pardon,” he says. In another, he hides his face behind a book as he whispers to a serious, dark-haired man beside him. “That was at a congressional hearing. That’s an executive from HealthSouth.”
There’s a photo of a cowboy-hatted Bill Clinton on a horse; Bennett defended Clinton in the Paula Jones case. “Bill sent that to me because he knows I love the West,” he says.
The shelves send a message: The hefty Bennett—wearing a gray pinstripe suit with a lavender silk tie and matching pocket square—is worth the money. He’s one of the nation’s top defense lawyers, and his clients pay more than $1,000 an hour for his time.
That’s part of the reason why partners at Hogan & Hartson, a DC firm founded in 1904, were happy to have Bennett join their ranks this September.
Bennett’s first job as a corporate litigator was at Hogan in the early 1970s. “I tell young associates worried about making partner that it took 35 years for Hogan to offer me partnership,” he says. He left Hogan to join a smaller firm, then moved to the DC office of Skadden, the global megafirm that rose to prominence during the takeover battles of the 1980s.
James Hourihan, now of counsel at Hogan, previously occupied this corner office. When Bennett returned, Hourihan agreed to cede the prime space to him.
Two decades ago, in 1988, Hourihan and his fellow Hogan partners earned an average of $267,000 in profits per partner. Today, the new occupant of Hourihan’s office will make millions of dollars a year. Hogan & Hartson was the highest-grossing law firm in Washington in 2008, with DC revenue of $447.5 million and profits per partner of $1.29 million, according to the National Law Journal. The profits-per-partner figure is an average; Bennett will likely make much more.
What has happened in the legal profession to generate such outsize revenue and profit? Why do lawyers make so much money?
$160,000 Paycheck at Age 25
Because all things legal come with caveats, here is one: Not all lawyers make so much money. Many attorneys—among them public defenders, prosecutors, lawyers for nonprofits, and many federal-government lawyers—earn salaries below $100,000. According to the DC-based Association for Legal Career Professionals, median 2008 salaries were $75,000 for veteran public defenders and $80,830 for senior state prosecutors.
But attorneys at corporate law firms and successful plaintiff’s lawyers can have big paydays. Many 25-year-old law-school graduates get first jobs as law-firm associates earning $160,000 a year. Salaries escalate from there, and—in better times—are often supplemented by five-figure bonuses. Law-firm partners, the owners and operators of these large businesses, do even better. In 2008, profits per partner at Washington’s ten highest-grossing firms ranged from $910,000 to $2.07 million.
Partners who leave their firms for government positions see their incomes drop, trading pay for prestige and maybe future earnings. In 2008, Eric Holder made $3.3 million as a partner at Covington & Burling; his current salary as US attorney general is $196,700. Greg Craig earned about $1.7 million in 2008 as a Williams & Connolly partner; as White House counsel he earns $172,200. John Roberts earned more than $1 million as a Hogan & Hartson partner in 2003 before he became a federal appeals-court judge; today, as chief justice of the Supreme Court, he earns $217,400.
A second caveat: The legal industry, usually viewed as one that thrives in good times and bad, hasn’t been immune to the recession. Many bright young people troop off to law school assuming they’re embarking on a secure career path with a job upon graduation practically guaranteed. Yet large-scale layoffs and postponed starting dates for new hires at many law firms have raised questions about the job security offered by a law degree.
“Right now there is a glut of talent in the market at almost all levels, for associates in particular,” says Peter Zeughauser, chairman of the Zeughauser Group, a law-firm consultancy. “So salaries are coming down. It’s all market-driven.”
One Chance to Get It Right
To be a lawyer, one must go to law school. The practice of law is a monopoly, essentially restricted to holders of law degrees who have passed the bar exam and satisfy other requirements for bar admission. That barrier to entry, coupled with the fear people encounter when they have to deal with the legal system, means lawyers can charge a lot.
“When someone is slapped with a lawsuit, there is an urgent need to address it, the stakes are often high, and they don’t know how to respond,” says legal recruiter Dan Binstock, managing director of the Washington office of BCG Attorney Search. “If you get diagnosed with some serious disease, you go to a specialist; nobody would question why the treatment would cost a lot.” Despite the proliferation of do-it-yourself resources online, Binstock says, “there is still this fear that there’s a right way to do this, and this sense that a person who has gone to law school has an inside track on how the process really works.”
“Lawyers beget lawyers,” says New York Law School professor Cameron Stracher. “When one side lawyers up, the other one needs to do the same. It’s like nuclear deterrence in a way.”
In 2005, DC administrative-law judge Roy Pearson dropped off his pants for dry cleaning at Custom Cleaners, owned by the Chung family. When the pants came back late, Pearson claimed they weren’t his. He sued the Chungs for $67 million for inconvenience, mental anguish, and failure to live up to a “satisfaction guaranteed” promise. Though Pearson’s lawsuit was widely derided, the Chungs had to hire a lawyer and the case went to trial. Pearson lost, but the Chungs’ victory was expensive: $83,000 in attorneys’ fees. Sympathetic supporters donated money to cover those costs, but the Chungs still ended up closing Custom Cleaners, citing “the revenue losses and emotional toll” from the lawsuit.
Hiring a lawyer is often a necessary evil—not unlike hiring investment bankers, whose compensation has also been criticized of late. Writing in the Atlantic, Megan McArdle compared the high salaries of investment bankers with those of “the voices of God” that you hear during movie trailers. Both investment bankers and top voice-over artists are well compensated; McArdle suggested that the explanation is that an IPO and a trailer are both one-shot opportunities.
“When you have only one chance to get it right, you tend to open up your wallet and pray,” McArdle wrote. “So one-shot deals are very, very expensive—a logic that prevails with weddings, funerals, and college diplomas.”
When clients hire lawyers, they are often in similar straits: They have one shot to close a deal, stay out of jail, or win a court case. “Companies are less cost-conscious when the future of the company hangs in the balance, and their lawyers really make the difference,” says Warren Gorrell, chairman of Hogan & Hartson and Bob Bennett’s new boss.
Gorrell cites the pre-recession merger between the Archstone-Smith Trust—parent of the local Charles E. Smith real-estate company—and Tishman Speyer. Hogan represented Archstone when it was acquired by Tishman Speyer for more than $22 billion, a deal announced in May 2007. Gorrell says the fine points of the merger agreement were crucial when the credit markets tightened that summer in a precursor to the current recession.
“In terms of whether the buyer had to close or not, it really mattered what the merger agreement said,” Gorrell explains. “Some of the last points that we negotiated in the merger agreement ended up being critical.”
The Hogan lawyers produced a lot of value for Archstone shareholders when lawyers for Tishman Speyer were looking for ways to exit the deal and couldn’t find one, says Gorrell.
Although corporate clients are concerned about the size and predictability of their legal spending, sometimes results matter more than cost, says Peter Zeughauser, the law-firm consultant. Consider a pharmaceutical company with a drug that provides billions of dollars in revenue each year. A rival challenges the legitimacy of the patent. Even if it costs $10 million, $15 million, or $20 million to defend the patent, the legal spending is what Zeughauser calls “budget dust” compared with the billions in revenue the drug generates each year.
“Lawyers are the left tackles of the business, protecting the quarterback that is our investment,” says John Thorne, deputy general counsel of Verizon, when asked why he has paid hundreds of thousands of dollars for corporate lawyers to defend the telecommunications giant in antitrust cases.
$1,000 an Hour a Bargain?
Some legal work, such as reviewing the thousands or millions of pages of documents involved in a major merger or litigation, is comparable to work done on an assembly line. Yet the client service that garners $1,000 an hour or more is very different. A person who hires Bob Bennett needs innovative thinking, sound judgment, and high-level contacts—the result of decades of experience. A lifetime of legal history is built into the fee.
To an outside observer, paying $1,000 an hour for someone’s time might seem exorbitant. “It’s hard to believe that talking to anyone who’s not a head of state is worth that kind of money,” says law professor Carole Silver, executive director of Georgetown University’s Center for the Study of the Legal Profession.
“I don’t think it’s crazy,” says Susan Hackett, general counsel of the Association of Corporate Counsel, the Washington-based organization that represents in-house lawyers and law departments. “Highly paid lawyers are often paid commensurate with their value. The problem isn’t with the person at the top of their game who charges $1,000 an hour but gives you a 20-minute answer, because they have the expertise or the connections,” she explains, adding that what clients really hate paying for is lots of $400-an-hour associates who really aren’t so expert.
Figuring out how to price legal services, especially in the upper echelons of the profession, is easier said than done. How does one put a price on the superbly crafted merger agreement that saves a billion-dollar deal from coming undone or the innovative litigation strategy that protects the patent of a blockbuster drug?
“It’s hard to figure out how much an idea is going to cost,” says Carolyn Lamm, president of the American Bar Association and a partner in the DC office of White & Case, an international law firm. “You’re looking at a mess and trying to figure out strategically what is the best way to approach it. It takes creativity and analysis. It’s hard to figure out any other way to price beyond the amount of time it takes you.”
A senior lawyer who left a large firm, where he charged more than $1,000 an hour, to start his own firm, where he charges clients in the three figures, frames the question this way: “Do some lawyers make more than a brain surgeon? Yes. Is that right? No. Does that mean those lawyers make too much or that the brain surgeon doesn’t make enough is the question.”
Bill $250 but Pay Only $35
Both surgeons and lawyers perform high-stress, high-stakes work. Lawyers, like some doctors, make sacrifices in their personal lives in exchange for big payouts.
“Corporate lawyers are essentially selling their souls for a large sum of money,” says law professor Cameron Stracher, a former Covington & Burling associate and the author of Double Billing, a novel chronicling the misery of being a corporate attorney. Lawyers at large firms are “expected to be on call 24/7.”
After a young associate at Quinn Emanuel—the firm that successfully defended the Washington Redskins’ name against Native American plaintiffs—failed to read and act on an evening e-mail until the next morning, a partner upbraided him publicly, reminding all attorneys that they’re expected to be available to clients at all times.
“You should check your emails early and often,” he wrote in an e-mail to all the firm’s attorneys. “That not only means when you are in the office, it also means after you leave the office as well. Unless you have very good reason not to (for example when you are asleep, in court or in a tunnel), you should be checking your emails every hour. One of the last things you should do before you retire for the night is to check your email. That is why we give you BlackBerrys.”
Corporate attorneys work long and unpredictable hours. Friends and loved ones learn to get used to delayed dinners and canceled vacations.
“Even though you make a lot of money, it’s not an easy way to make a nickel,” says consultant Zeughauser. “If you’re billing 2,000 hours or more a year, your work/life balance is not that great.”
Lawyers measure out their lives not with J. Alfred Prufrock’s coffee spoons but in billable hours. Law firms generate profits by billing clients, typically by the hour. Associates, who are employees of the firm, generate profit for partners, who are owners of the firm, when associates generate revenue in excess of their salaries and associated overhead.
Law firms also profit by charging clients for other employees, such as paralegals, and for work that the firms outsource. Says a contract attorney who has worked on projects for many Washington firms: “In 2005 or 2006, I was working on a document-review project for a big firm. I went to the copy room to make a copy, and when I looked down, I saw an administrative document with my name on it. I looked closer and realized it was a list of all the attorneys on the project and the rate that the firm was billing the client. I was being paid $35 per hour for my time, but the document listed my billing rate at $250 per hour.”
Because of this structure, associates are under lots of pressure to bill more and more hours. Sometimes they earn big bonuses for hitting billable-hour targets. Associates who want to make partner need to keep their billable hours high. Not every hour spent working can be billed to the client, so to bill 2,080 hours—an average of 40 hours a week—a lawyer must spend more time at work than that. Take a vacation, a holiday or two, get sick for a couple of days, and you’re working 60 to 70 hours a week just to meet minimum billing targets. Want a promotion or assurance that you won’t be laid off? Work longer.
The money comes, but it doesn’t come easy.
Riding the Wall Street Wave
“If someone asked me in 1995 if it would be possible for lawyers to make millions of dollars per year, I would have said, ‘You’re crazy,’ ” says White & Case’s Carolyn Lamm, elegant in a purple wool suit with a diamond necklace and earrings. She laughs when she recalls that her first job at the Department of Justice after graduating from law school in 1973 paid $14,500—about $70,000 in today’s dollars.
Lamm, who became president of the American Bar Association this year, has seen White & Case grow exponentially over the last three decades. “When I came to the law firm in 1980, I was the tenth lawyer in the DC office,” she says. “When I became a partner, I was the 64th or 65th. You knew all the other partners. Now there are thousands of associates, and the number of partners is in the 400s. It’s just a whole different structure.”
Many lawyers attribute their growing paychecks to the evolution of the American economy. Larger amounts of money are at stake, and lawyers’ salaries have been supersized along with the deals they work on.
Hogan & Hartson chairman Warren Gorrell says his starting salary at the firm in 1979 was $25,000 a year—about $75,000 in today’s dollars. “When I was a first-year associate working for Riggs Bank, I might have been drafting a promissory note for $5 million,” Gorrell recalls. “Today we work on billion-dollar financings overnight. It’s just a different amount of money in the balance with everything that you do.”
Lawyers’ salaries have risen with the tide of the American financial industry. When that tide turns, lawyers suffer. Finance and real-estate attorneys have been laid off in high numbers during the recession.
As the banking and real-estate sectors recover, many observers say lawyers in Washington will be the beneficiaries. “Historically, if you wanted to be a top-tier financial-services firm, you had to be based in New York, maybe with a London presence,” says Andrew Sandler of BuckleySandler. “Washington has become the financial-services capital of the world. The federal government is the biggest player in the commercial-banking industry. Shareholders used to own banks. Now the government does.”
Searching All Those E-mails
The rise in corporate transactional work was driven by the economic boom. The increase in litigation and regulatory work was fueled by a different but also powerful set of factors. Stephen Bainbridge, a law professor at UCLA who blogs about the legal profession, explained the phenomenon: “The postwar expansion of the regulatory state, the opening of the courthouse doors to new claims during the Warren Court era, and the litigation explosion provided an exogenous shock that caused demand for lawyers to rise rapidly.”
In the last 20 years or so, “multibillion-dollar litigation started becoming not that unusual,” says Ted Frank, an advocate of tort reform and president of the Center for Class Action Fairness—and an alumnus of three large firms. “When you have billions of dollars at stake, it becomes a rounding error to throw as many lawyers at it as possible.”
And the lawyers who get thrown into these matters often come from the nation’s leading—and most expensive—law firms. It’s like the old saying about how no one got fired for hiring IBM. “The incentives are there to hire the big law firms,” says Frank. “No one will second-guess you if you’ve gone to O’Melveny or Kirkland or any of a few dozen top-notch firms.”
Besides an increase in legal filings over the past two decades, there has been an increase in how expensive it is to litigate cases. Frank cites the advent of e-mail as adding to the cost of litigation—and the corresponding increase in some lawyers’ incomes: “The discovery rules haven’t changed to account for the fact that what used to be a few boxes of documents in a litigation has now become all e-mails since time immemorial. It requires a lot of warm bodies to look at them. And even though there has been a rise in the use of temp lawyers and contract lawyers to cover these, it does make any given litigation that much more expensive.”
Litigating cases today is costly—but so is losing cases at trial or, more commonly, settling them. Large verdicts and settlements have boosted the incomes of plaintiffs’ lawyers, who typically get a percentage of any recovery.
This year, a former Pfizer sales representative, John Kopchinski, was awarded $51.5 million for his role as a whistleblower against the world’s largest drugmaker. He was represented by the DC firm Phillips & Cohen in his six-year battle. Erika Kelton, the lead attorney on the case, wouldn’t disclose the percentage of the award that Phillips & Cohen received, but another practitioner in the area estimates the firm’s take at $18 million to $21 million. Such cases have helped make Phillips & Cohen—which recently moved into new offices in the Blaine Mansion off Dupont Circle—one of the city’s most successful plaintiffs’ firms.
Kopchinski was appalled that Pfizer was marketing the drug Bextra for arthritis and menstrual pain even though it put patients at risk for heart problems. He also alleged that doctors were paid kickbacks to promote Bextra for off-label uses, despite the health risks. Pfizer paid more than $2 billion to the government—the largest criminal fine ever imposed in the United States and the largest civil-fraud settlement against any pharmaceutical company.
Why did Kopchinski get such a huge award? The federal False Claims Act allows private citizens to file actions against federal contractors claiming fraud on behalf of the government. To create an incentive, so-called qui tam plaintiffs are entitled to 15 to 30 percent of the award; Kopchinski’s award was calculated based on the civil but not the criminal part of the Bextra case.
Kelton has been working on such whistleblower suits for more than two decades. She’s had clients who went from being senior employees at companies to mowing grass or bagging groceries after blowing the whistle on their employers. When Kopchinski left Pfizer, he had a one-year-old and his wife was pregnant with twins. He went from earning about $125,000 a year to a $40,000 job at an insurance company.
“One thing the public doesn’t understand is how much personal and professional risk these individuals take,” says Kelton in response to critics of multimillion-dollar payouts for private citizens and their lawyers. “When you stand up and point the finger at your employer over fraud, there’s enormous risk. Many of these people will never work again.”
They Wanted to Be Rich
Jane Sullivan Roberts is a 25-year veteran of the legal industry. She was a partner at Shaw Pittman (now Pillsbury Winthrop Shaw Pittman), is married to Chief Justice John Roberts, and is now a managing director at Major, Lindsey & Africa, a leading legal recruiting firm. She represented Bob Bennett in his move from Skadden to Hogan. Asked about the biggest change she’s seen in the industry, she responds, “Compensation went up. A lot.”
Given her impressive credentials and connections, Roberts’s office is surprisingly bare-bones. On a rainy fall afternoon, a visitor is greeted by a bowl of Jolly Rancher candies and two computers and a TV set stacked on the floor in the lobby. A bulletin board leans against the wall behind Roberts’s desk; no family photos are in evidence.
“I started at Dorsey & Whitney in Minneapolis partly because I liked the work/life balance there,” Roberts says, describing her first job as a lawyer in the 1980s. “They raised our salaries when we first got there, and a bunch of us met in the library to say, ‘No, thank you. We know what this means. We know if you increase our salaries to match the New York market, we’ll have to work harder.’ We lost that battle. And we had to work harder.” Her starting salary was about $56,000.
She thinks the 1990s were the crucial period of change. “Until the 1990s, lawyers wanted a comfortable, secure life and interesting professional work. Then, in the 1990s, when their dot-com clients were getting rich, many lawyers also wanted to get rich,” says Roberts, who believes that was spurred in part by the publication of profits per partner by the American Lawyer, a magazine founded by Steven Brill in 1979 that shocked the legal industry by shedding light on firms’ inner workings and finances.
“At the same time,” Roberts says, “the American Lawyer had begun reporting per-partner profits, and partners could see how much more profitable other firms were. And so some partners began to lateral to other firms to make more money.”
Law School by Default
As a young lawyer, Gordon Chin watched salaries spike in the early 2000s. “Are lawyers worth $160,000 coming out of law school? No,” says Chin, a real-estate attorney who was laid off earlier this year. “But is that what you have to pay to get the best talent? Yes.”
Historically there has been a limited supply of the best and brightest legal minds, causing salary wars among firms hoping to attract them. Salaries for first-year associates at the biggest firms jumped from $72,000 in 1995 to $125,000 in 2000 to $160,000 in 2008.
Some people worry about the societal brain drain caused by the attractiveness of the law. In a recent interview for C-SPAN, Justice Antonin Scalia wondered whether some of the talented individuals entering the legal profession should devote themselves to “inventing the automobile or, you know, doing something productive for this society” instead of practicing law.
“Lawyers, after all, don’t produce anything,” Scalia said. “They enable other people to produce and to go on with their lives efficiently and in an atmosphere of freedom. That’s important, but it doesn’t put food on the table, and there have to be other people who are doing that. And I worry that we are devoting too many of our very best minds to this enterprise.”
“A lot of people go to law school by default,” says Dan Binstock of BCG Attorney Search. “They don’t know what to do, and they have this sense that a law degree can’t hurt you. Well, learning to fly a helicopter can’t hurt you, either.”
And a law degree can hurt you if it saddles you with debt and can’t get you a job.
“Law school is not all that great a place to go as a kind of finishing degree or a way of postponing hard choices,” says William Henderson, a law professor at Indiana University who studies the legal profession. “If you have to go $125,000 or $150,000 in debt but don’t have a passion for the law or know why you want to do it, you have to think carefully.”
They’re Like Autoworkers?
Even law schools are telling prospective students to think carefully. Given the difficulty that law-school graduates currently have finding jobs, the University of Miami offered admitted law students enticements to delay entry for a year. This led UCLA law professor Stephen Bainbridge to speculate that law schools were churning out too many graduates, resulting in an oversupply.
Bainbridge suggested in a blog post that law has become a mature industry. In other words, lawyers may be the white-collar version of automobile workers. Corporate lawyers have enviable incomes now, but so did autoworkers during Detroit’s heyday.
Mature industries—such as automobiles, oil, and tobacco—will cease to grow. They are defined by buyers demanding cost reductions, stiffer competition, consolidation among suppliers, and reduced innovation. Bainbridge wrote that these factors are present in the legal profession.
Clients have put increasing pressure on firms to reduce their bills. Evan Chesler, presiding partner of the powerhouse firm Cravath Swaine & Moore, rocked the legal world earlier this year when he wrote an editorial for Forbes entitled “Kill the Billable Hour.” In it he advocated a fixed-fee model akin to what one would work out with a home-improvement contractor.
Clients are seeking out lower-cost options. The newcomer legal-services firm Axiom offers pedigreed lawyers at a fraction of the rates charged by traditional firms. It can do this because it has no partners and limited office space—the DC office consists of four cubicles on the fifth floor of the Advisory Board Company building in downtown DC. The attorneys, who come from some of the city’s elite firms and average 12 years of experience, charge by the week at a rate that works out to $160 to $200 an hour. Attorneys work at the clients’ offices or from home. Axiom brags that it has cut costs for clients but still offers competitive salaries to its lawyers—the median is just above $200,000.
Other experts don’t embrace the characterization of law as a mature industry. “Some lawyers are like autoworkers and some aren’t,” says Peter Zeughauser. “The legal market has been incredibly fragmented and immature.” Although there have been many large law-firm mergers, “there is a lot of consolidation yet to take place.”
Mature industries typically are marked by reduced innovation. Yet pressure from clients is forcing law firms to innovate. The DC-based Clutch Group has more than 300 contract attorneys in the United States and 100 lawyers in Bangalore, India, who work on legal projects such as document reviews. The firm’s business has boomed in the last five years as law firms and corporations increasingly turn to it for cheaper legal services. An Indian attorney’s time costs about $25 an hour.
Major law firms are starting to use such services. Carolyn Lamm of White & Case recalls a recent arbitration that required millions of documents to be scanned into a searchable electronic database. It would have cost $1.5 million in the States; Lamm had it done in Manila for about $200,000.
Lamm also notes that American firms remain competitive on the world stage. The weak dollar means that US firms with global practices are now the low-cost options for clients abroad compared with UK and European firms, she observes. And Lamm predicts that the legal industry will continue to grow at home.
“Intellectual property and guidance are becoming more important rather than less important,” she says. “And there will continue to be investigation of things like Madoff. We’re going to see more law, not less law.”
Yet will it be more law at lower prices, generated by fewer people, earning smaller salaries? Quite possibly. It’s doubtful the forces of change can be reversed.
Perhaps law firms will grow smaller in size and pay more moderate salaries, muses Georgetown law professor Mitt Regan. “Maybe we’ll go back to that period before the mid-1980s where lawyers make a comfortable living but a smaller portion of them are truly wealthy.”
And maybe that wouldn’t be such a bad thing.