Gruntled Employees

Legal advice: 30% off! (Why discounts don't always save you money)

It seems like more clients are complaining about their legal bills. With hourly rates rising into record-setting territory (see "Cheaper than A-Rod: Some lawyers getting $1,000 an hour"), there's plenty to complain about. Many  sophisticated clients are questioning whether the problem is hourly billing itself. (See "No-alternative billing" and "Outside counsel ignoring GCs on hourly billing.")

And how are many law firms responding?

Discounts.

Taking a page from the mattress sellers' handbook, some law firms are offering discounts for certain services. Employment law is a common example, since it's often seen as less critical than securities law or mergers-and-acquisitions work. (Of course, without talented employees, your securities and your acquisitions aren't worth a heck of a lot, but that's a fight for a different post.) "Six hundred bucks an hour for defending a discrimination charge? You're right, client. Tell you what I'm gonna do ...."

Thinking that they're mollifying the cost-sensitive client, the lawyer offers a discount in the form of a lower rate, written-off time, or a change in the staffing of a project. But these discounts can actually increase your legal costs. Here are five reasons why:

1. Lawyers are rational, and will work harder on more-profitable matters.
Now most lawyers are ethical, but they are not selfless saints. Instead, most lawyers are rational human beings. (Yes, believe it or not, lawyers are human beings, no matter what you've heard.) Human beings tend to respond to incentives. They tend to prioritize their actions based on the expected rewards.

Let's say a lawyer has two otherwise identical projects to work on: same level of difficulty, same amount of intellectual interestingness. The project for Client A is billed at the lawyer's usual rate of $400 an hour. The project for Client B is billed at a discounted rate of $215 an hour. If the lawyer has an hour to bill before a meeting and wants to add as much as possible to the firm's bottom line, the lawyer — a rational human being — will usually choose Client A's project.

Knowing that the undiscounted project is more rewarding, the rational human lawyer will tend to give his or her best efforts to that project. Now some lawyers will tell you that they put the same amount of effort into each project, regardless of the reward. But they're either lying to you, or they're lying to themselves. Or maybe they're just not rational human beings.

2. Lawyers are rational, and will work less hard when they know their time is worth nothing.
Sometimes it makes sense to have two (or more) lawyers working on the same task at the same time. Multiple lawyers can brainstorm together to come up with the best ideas about how to proceed on a case. Bringing another lawyer to a client meeting can help make sure that nothing gets missed.

But clients hate being billed for this. When they see a bill entry that describes two lawyers having an office conversation about a case — whether it's called analysis or strategy session or whatever — they often see it as an attempt to jack up billable hours. Knowing this, the smart rational human lawyer will cut his or her time so as to not show the doubled-up billing. But being rational and human, and knowing that he or she can't bill for that time, there will be a tendency to mail it in. No one likes to work for free.

3. In the billable-hour paradigm, there is no incentive for efficiency.
Discounting doesn't solve the biggest problem with hourly billing, which is a built-in disincentive to efficiency. If I take longer to do a job, the client pays me more. Lowering the hourly rate doesn't change that reality.

4. When a firm lowers its rates, it must make up the difference some other way.
Discounting the hourly rate has no effect on the law firm's costs, like associates' salaries and rent. Assuming the firm desires to make a profit (and why shouldn't it?), it must make up the shortfall somewhere else. That somewhere else is more hours, not-entirely-necessary work, or the use of partners to do associates' work (getting the higher discounted rate instead of the lower one).

5. For a cost-sensitive client, a firm may push work down to a lower-level associate.
Instead of using a discounted rate, a firm might lower the client's costs by giving work to a junior associate that would have otherwise been done by a partner or senior associate. This artificial staffing imperative rarely helps the client. A junior associate might take longer to get the job done, and might miss something. Then the partner has to redo the work, and then cut his or her time (see number 2 above). Work should be done by the right-level lawyer, regardless of the rate.

*    *    *

These five reasons apply more to partners than to associates. At most firms, associates are more concerned with the total number of hours they bill than the rate at which they bill. (In fact, they often don't see the final bill.)

The bottom line for clients is to look at the bottom line — not just the discounted rate. You might just find that your law-firm discounts are actually costing you more.

[Note: I revised and reposted this piece on September 21 because I didn't think the original version was good enough.]

Ept managers lead to gruntled employees

Seventy-seven percent of Americans hate their jobs. This from a Gallup poll reported in TIME's Work in Progress blog by Lisa Takeuchi Cullen. (I first saw it in Diane Pfadenhauer's Strategic HR Lawyer blog.) Not a good statistic.

On the other hand, 90% of managers think they're in the top 10% of performers. This from a BusinessWeek poll of 2,000 US executives and middle managers (article here, poll results here). (Rob May's Businesspundit.com turned me on to these results.) Most of these respondents are, of course, wrong — and suffering from the Lake Wobegon effect.

Taking these two polls together leads to some conclusions. Most managers think they're swell (and executives are even worse — 97% put themselves in the top decile). But they can't all be that good. And if more than three fourths of their employees hate their jobs, then most of the managers must really stink.

Universal truth: Inept managers lead to disgruntled employees, which in turn lead to diminishing profits. (And employee lawsuits, of course.)

Parallel universal truth: Ept managers lead to gruntled employees, which in turn lead to minishing profits. (And fewer lawsuits.)

Now ept may be no more real a word than gruntled (or minishing for that matter), but your managers won't notice because they're too busy patting themselves on the back (and their employees are too busy working on their résumés). Focus on making your managers more ept (epter?), and you'll end up with fewer employees hating their jobs.

Your employees are the sizzle

My wife and I went out to dinner Friday night at a new restaurant in Boston called KO Prime. Its temporary website describes it as "a modern, creative interpretation of a traditional steakhouse with an energetic, sexy and chic atmosphere." As intimidating as that sounded, we thought we'd give it a try.

We showed up around eight o'clock without reservations. Although it was busy, the hostess was friendly and accommodating and sat us immediately. A busboy greeted us right away and quickly delivered water and bread. Then our waiter, Josh, introduced himself and asked if we'd been there before. Everyone was friendly and pleasant, but not in an in-your-face way.

Now if you don't already know it, Boston is a baseball town. The Red Sox have the best record in the majors and are on their way to their first division title since 1995. KO Prime's bar is separated from the dining room by a frosted-glass wall, but from where I was sitting, I could just see part of the bar's television. The Sox-Orioles game was on (with the sound off). I happened to look up as the benches cleared, and like any true Sox fan, I needed to know what was happening. With a sheepish apology to my wife, I got up and hurried over to the bar.

Everyone in the bar was staring at the screen, trying to figure out what was happening without the benefit of audio. (As I later learned, Baltimore pitcher Daniel Cabrera, agitated after Coco Crisp caused him to balk in a run, threw behind Dustin Pedroia, clearing the benches. No punches were thrown, Cabrera was tossed after throwing a complete nutty, and the game resumed.) This took at least five minutes to sort out. I said to the guy standing next to me that my wife was probably tiring of my having left her alone at the table. (Understandably.)

Turns out the guy was Phil Gerster, the restaurant manager. Without missing a beat, he called over to the bartender and asked for a glass of Champagne, then hand-delivered it to my wife (who was amused and mollified).

We chatted with Phil for a few minutes, and learned that he had been working in restaurants his whole life, starting out as a dishwasher. When we mentioned that everyone had been providing us excellent service, Phil gave us his management theory (I'm paraphrasing here):

It's all about the service. It doesn't matter if you have the best food in the world. If the people serving you are jerks, that's what you're going to remember. And you're not going to come back.

And Phil is absolutely right. Our food was great. But what will bring us back in the future — and more importantly, what will lead us to tell others about it (and to write this post), was the friendly, thoughtful service we received. In addition to Phil's marriage-salvaging Champagne, we had:

• Josh, the waiter, unsolicitedly opening a new bottle of great Shiraz to give me a taste (at no charge) when I happened to mention that I usually drank that variety of wine. (The Malbec he recommended with my ribeye, a Navarro Correas Alegoria 2004, was amazing.)
• The busboy quipping in accented English that the aforementioned ribeye — which had a 14-inch bone sticking out of it — looked like something out of "The Flintstones."
• The hostess, while we were all watching the Red Sox nonfisticuffs and some new guests arrived, telling me that she would rather see what happened with the game. (She was kidding, and she greeted the guests just as warmly as she'd greeted us.)

You've heard the marketing expression "Sell the sizzle, not the steak." It applies to the workplace, too. While your company's product or service is the steak, your employees are the sizzle that will keep people coming back. Keep that in mind when you're hiring employees.

US workers most gruntled?

Hope you had a nice Labor Day weekend. You earned it. You worked hard. In fact, according to the International Labour Organization, you worked harder than everyone else. The ILO released a report yesterday showing that American workers were the most productive in the world.

Actually, it's not that you necessarily worked harder; many workers put in longer hours. Americans worked an average of 1,804 hours in 2006. Workers in seven Asian nations, including South Korea and China, averaged more than 2,200 hours. (Not surprisingly, the French rolled in for a total of only 1,564 hours.)

But as we've said in this space many times, it's not about the hours you work; it's about the value you create.

According to the report, the average American worker produced $63,885 of wealth in 2006, far more than the number-two producers, the Irish, who averaged $55,986. What is more, the productivity gap between Americans and workers in other developed countries continued to widen.

Here's the ILO's explanation for the productivity increase:

Increase in productivity is mainly the result of firms better combining capital, labour and technology. A lack of investment in people (training and skills) as well as equipment and technology can lead to an underutilization of the labour potential in the world.

It says here that the more gruntled employees are, the more productive they are. Maybe American workers are more gruntled than their international counterparts.

The ILO is a UN agency based in Geneva. The report, called "Key Indicators of the Labour Market, 5th Edition," is available here. (From that page, you can either download a Windows-application version of the report — but why would you? — or you can download PDFs of the report in chunks.) The ILO's press release on the report is here, and The New York Times reports on it here (login may be required). The AP story, via The Boston Globe, is here.