David Lat has the numbers today on how much the top partners at Dewey & Leboeuf were making. At the top of the list are Berge Setrakian and Ralph Ferrara, both of whom made around $12.5 million in 2011.
As far as I know, the top recorded rate that any lawyer bills out at is Ted Olson’s $1,800. And obviously the amount of money that law-firm partners make is not the same as the amount they bill out at: they’re not just workers but they’re also part owners of their law firms, and share in the whole firm’s profits. But it’s still an interesting exercise to take annual income and divide it by billable hours to see what top law firm partners can make per billable hour.
And here’s the glorious thing: even if you assume that Setrakian and Ferrara bill 2,500 hours per year, that $12.5 million works out at an eye-popping $5,000 per billable hour.
Of course, at these levels, you’re not (just) being paid for the direct work you do for clients: what you’re really being paid for is bringing new clients into the firm and getting the firm revenue streams which can reach hundreds of millions of dollars. But there’s still a reason why those clients will follow you to the firm, and that reason is that the clients will expect you to do real work for them.
Which helps to clarify exactly where the value lies, in law firms. Junior associates get paid less money than they bill out at; partners get paid more money than they bill out at. At the same time, it’s very unlikely that the clients really think they’re getting $400 an hour in value from a relatively junior lawyer poring over boilerplate at 2am.
In other words, differences in billable rates are basically an accounting fiction, which is used to come up with a calculable final figure to be presented as the bill, but which do not actually reflect the difference in value between various strata of lawyers. In order to do that, you’d be better off dividing annual income by, say, 2,500.
If you’re earning $250,000 a year, then that means you’re earning $100 per billable hour, if you work really hard. And if you earn $12.5 million, that works out at $5,000 per hour.
All of which is to say that Ted Olson’s $1,800 is low. And I suspect that if you multiply the number of hours he bills per year by $1,800, you’ll end up at a fraction of the amount he’s actually paid.