A new report looks at how compensation is being structured for pricing professionals and pricing teams within law firms
The economic uncertainty greeting the start of 2023 is, for many, calling to mind comparisons to the last great economic downturn that truly impacted the legal market: The Great Recession of 2007-‘08. Fortunately, many law firms today find themselves in a fundamentally different position from which to confront today’s pricing pressure in particular due to investments made in their legal operations functions over much of the past decade, specifically in their pricing leaders and support teams.
The Great Recession and its fallout saw the introduction of two relatively new concepts into the legal marketplace: the alternative fee arrangement (AFA) and the rise of in-house legal operations and procurement. Prior to the recession, the typical pricing arrangement between a client and a law firm was a relatively simple matter of the firm setting a rate, billing the client, and the client then paying the bill.
As clients increasingly turned to their legal operations and procurement teams to help drive down their own legal costs, the billing arrangements between clients and law firms became more complicated. Enter the age of the AFA, a plethora of pricing options encompassing capped, collared, and fixed fees, rebates, volume discounts, and much more.
While some law firms have had at least some members of their professional staff focused on pricing since long before the Great Recession, for many more, the idea of a dedicated pricing team has grown in importance in recent years.
In a few short years, the use of AFAs grew to nearly 20% of the average law firm’s revenues, and with the rise in revenue, so grew the need for experienced professionals to help shepherd these arrangements into being and thus ensure their success. A key part of that role quickly became having these professionals involved in direct negotiations on rates with highly trained procurement professionals on the other side of the table. In addition, law firm pricing professionals soon were responsible for other matters, such as the strategic navigation of tools like reverse auctions, which clients sought to use aggressively to contain their legal spend.
While some law firms have had at least some members of their professional staff focused on pricing since long before the Great Recession, for many more, the idea of a dedicated pricing team has grown in importance in recent years.
For many firms, this has resulted in fierce competition for experienced legal pricing talent to lead these critical pricing functions. Compensation has followed demand across the industry, from lead roles down to junior analysts.
The True Value Partnering Institute, in collaboration with its partners, Rees Morrison at Savvy Surveys for Lawyers, and the Thomson Reuters Institute, have tracked the progress of these pricing professional for many years. To that end, the group has published its latest report, Compensation for law firm pricing professionals at the start of 2023. Launched originally in 2017, this survey has charted the growth of legal pricing professionals, not only in terms of compensation but also team composition, as well as examining where the team fits into current firm structure, and how the team spends its time.
According to the most recent findings, compensation across pricing roles has risen notably. For example, in the last iteration of this survey, chief-level pricing officers were nearing $500,000 in total compensation; the most recent results show nearly every chief-level pricing officer exceeding this threshold. Even at the director level, some highly compensated directors were earning as much annually as their counterparts with chief-level titles.
For a more complete examination of the current state of compensation and job roles for legal pricing professionals, you can access the new report, Compensation for law firm pricing professionals at the start of 2023 here.
The findings also caution against falling into the trap of assuming that salary is reflective of experience or expertise. Drawing an analogy to lawyers, one would be mistaken to assume that a higher-paid lawyer at a larger firm always provides higher quality representation than a peer at an Am Law Second Hundred or Midsize law firm — the same holds true for law firm pricing professionals. In both cases, the successful outcome of a pricing arrangement is much more closely tied to the skill of the individual, and many skilled pricing professionals can be found outside the echelon of the largest law firms.
In that same vein, the number of years a professional has been with their current law firm was not found to be indicative of compensation. Indeed, it was more common to find higher compensation among professionals with shorter tenures at their current firms. However, this is likely a reflection of the highly competitive market for these professionals. More than 50% of respondents indicated that they’ve been with their current firm for fewer than five years with near 25% reporting a tenure of less than a year-and-a-half.
The market for experienced law firm pricing talent is, indeed, competitive, and the result, predictably, appears to be high mobility and commensurately competitive salaries.
