In-House Legal Budgets And Compensation: Survey Says....
In-house lawyers are responding to today's challenges in interesting ways -- and earning more money, too.
Will increasing legal demand make it rain for lawyers in 2017?
A major theme at the recent annual meeting of the Association of Corporate Counsel (ACC) was how in-house lawyers can do more with less. This is not a luxury but a necessity, in an age of static or even shrinking legal budgets.
A survey just released by HBR Consulting captures the challenges faced by corporate legal departments. Here are some of the findings:
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[C]ompanies worldwide reported a minor increase in total legal spend – up only one percent compared to the two percent increase reported in last year’s survey. On the other hand, outside counsel spending decreased by two percent.
So total legal spend is about even with inflation, and spending on outside law firms is actually declining. This trend has law firms running scared.
How are in-house lawyers responding to these challenges? Here are some steps they’re taking, per HBR:
Continuing to invest in talent. The average increase in total compensation according to this year’s survey (base salary, cash bonus and long-term incentives) across all attorney levels was 3.3 percent. In-house staffing continues to increase year over year, and this year’s survey results showed they are doing so at a steady pace. Worldwide, 47 percent of organizations reported an increase in the total number of attorneys employed, which is flat compared to last year’s survey results. Participants increased their total number of legal staff worldwide 54 percent compared to 53 percent last year.
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It’s nice to see that in-house lawyers are doing well (and the best-paid general counsel are doing really well). But the growth in in-house headcount, presumably driven by corporate legal departments doing more work themselves (instead of sending to outside firms), should be a source of concern for Biglaw (and boutiques that play on the same field).
Using technology to drive change. Law departments are increasing their use of technology to handle increased legal demand. The HBR Survey found that the median technology spend is currently $204K, which represents a two percent increase from last year’s results. The top three technology investment areas for law departments are: document management, legal spend analytics and contract management, according to the Survey.
This should come as no surprise. As we’ve discussed before, technology can help in-house lawyers do everything from handle HR issues, manage contracts, and streamline the discovery process.
These investments in talent and technology are mutually reinforcing. As noted in the recent Thomson Reuters insourcing and efficiency report, corporate legal departments are hiring more legal department operations (LDO) professionals to operate the new technology and improve delivery of legal services.
Pursuing alternative fee arrangements. In this year’s Survey, 85 percent of respondents reported using alternative fee arrangements (AFAs), up five percent from last year. Of those that reported utilizing AFAs, fixed-fee per matter and flat fee for all matters in an area of work were the most common. Among law departments that realized cost savings from AFAs, their approximate percentage reduction in outside counsel spending was eight percent. Even with broad current usage, 80 percent of respondents are looking to increase the use of AFAs in the next year.
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This makes sense as well. For example, an AFA allowed UPS to save money and increase predictability with regard to litigation over lost or damaged packages.
Let’s end on a happy note — for lawyers, if not for their clients — and look ahead to 2017:
When asked to forecast their legal needs, 79 percent of respondents stated their legal needs would increase in the next year, compared to just 16 percent of respondents who believe demand for legal services will stay the same. Commercial contracts and regulatory compliance are the top focus areas that companies anticipate will require the most legal attention in the next year.
May increasing legal demand lead to big bonuses and pay raises for in-house and outside counsel alike!
Law Departments Continue the Journey Toward Operational Excellence [HBR Consulting via BusinessWire]
2016 Legal Department In-Sourcing and Efficiency Report [Thomson Reuters]
2016 ACC Annual Meeting [Association of Corporate Counsel]
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David Lat is the founder and managing editor of Above the Law and the author of Supreme Ambitions: A Novel. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at [email protected].
