Hourly Rates Are Coming Down. Who Cares?

Innovative Compensation Models Are Coming Up

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Marc Brownstein
Marc Brownstein
Last week, I read an article in The Wall Street Journal about how lawyers' fees are under pressure to come down from clients. Law-firm clients are beginning to implement project fees, monthly retainers and other cost-containment compensation arrangements.

Sound familiar?

Yeah, we've been there, done that. While the advertising industry would love to even approach the hourly rates that lawyers earn, this trend is only going to make it more difficult on other service providers to maintain respectable billing levels. However, I believe it can also be a good thing for service businesses like ours.

I am convinced, for example, that our industry is better off now that we are not relying on media commissions to pay for an agency's creative and account-management services. We are also better off moving away from an hourly billing rate. According to the article, law firms are finding that they can be more efficient when they don't have to bill for every 10 minutes of a junior lawyers' time. It is often more effective and cost-efficient for a senior lawyer to do in a fraction of the time what a junior associate could do. And fixed fees also force service providers to find new ways to drive efficiencies within their own businesses, just as Walmart's vendors have learned to run smarter manufacturing plants. And I imagine the vendors are doing OK having Walmart as their largest customer, or they would stop selling it.

Pressure on hourly rates is forcing innovative compensation models such as value billing and various forms of incentive compensation. In both cases, the focus of the compensation structure is on what the thinking is worth or how effective the ideas are. That makes more sense than billing X number of hours for an idea. And the American Association of Advertising Agencies is doing its part to help lead a trend toward better compensation structures and ensuring that agencies are able to earn a premium for their work. All of these efforts can only make a positive impact.

So while hourly rates aren't going north any time soon in this economy, maybe we shouldn't worry about it. Our attention should be on earning fair fees for successful ideas. And there are plenty of ways of achieving that on the table.

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