#25 All Billable Hours Aren’t Created Equal

This is post #25 of my #365 day series.

A billable hour is not a billable hour is not a billable hour. When I started practicing law, I was at first drawn to the concept of a billable hour as something of a badge of pride. It was external validation of what I was worth. This probably had something to do with having imposter syndrome and undervaluing my time as compared to my peers. As I’ve gotten more senior (read: getting older), I’ve had the realization that the billable hour is a bit of an absurd model if you consider it from a third party perspective. How is everyone’s time valued the same? Frankly, how is everything you do valued at the same rate? Does brushing my teeth have the same exact value as working out at the gym?

As with most things in life, it’s easier to reduce these complex interactions into simpler models. Enter the billable hour model, which values attorneys at the same firm, at a certain level of “eliteness,” at the same year of experience, at the same rate. That doesn’t make a whole lot of sense though, since Attorney Alice’s experience is more than likely much different from her colleague, Attorney Bob’s experience. Attorney Bob might have just done grunt work for 2 or the 3 years, whereas Attorney Alice might have handled more substantive matters in the same amount of time. This type of experience versus time spent dynamic turns the model on its head, because it’s a better return on investment to be handling Attorney Bob’s type of workload since it is lower risk and lower stress. If both Attorney Alice and Attorney Bob are paid the same amount because of their class year, regardless of their actual skill level, then we are creating a system that rewards survivability versus a merit-based system that rewards accretion of useful skills and experiences.

So what’s the alternative? Output based incentives. So in the case of Alice versus Bob, if Alice outputs work product at: (1) higher quality; and/or (2) high complexity, then we should give her greater credit than Bob. Michael Roster refers to this output based model as the work unit model. Work units represent a function of quality and complexity and is a measure of actual productivity and value provided, rather than just valuing time as a constant (which as we’ve established, makes sense but has massive efficiency drops). An output based incentive model (i.e. the work unit model) also has the added benefit of being able to mirror the hourly fee based model pretty closely, since we can fix a cost/price to each of the work units based on quality x complexity. Moreover, it has a greater correlation with the actual value of the output and prevents Bob from being overvalued versus Alice (this includes valuing Bob’s work the same as Alice’s work despite the much lower complexity score).

Will law firms move towards the work unit model? Definitely. Will they do so now or in the near term? Very doubtful.