Partner rates as a function of cost of living allowance (COLA wars)

It is often thought that a partner who bills at $600 an hour will accomplish a given task more quickly – and presumably more expertly – than an associate who bills at $300 an hour. The judgment and experience of the partner justifies the hourly rate that is twice as high. This assumption generally holds.

What doesn’t hold is a similar assumption for partners of the approximate same experience and firm size but in different cities and therefore who bill at different rates. Consider these instances. Partners N in a 100-lawyer New York City firm, D in a 100-lawyer Denver firm, and M in a comparable Memphis firm each worked on law review at a good school 25 years ago and each handles mostly large acquisitions and divestitures. Their standard billing rates are $800 an hour for N, $475 for D, and $350 for M.

If someone makes $300,000 in Manhattan but moves to Chicago, it takes only $148,709 to maintain the same buying power. So the cost of living is half as much and the partner billing rates reflect much of that gap. If the Manhattan partner moves to Memphis it takes only $122,635 to reach cost of living parity.

Ceteris paribus never is, but if each partner has handled a similar number and kind of deals. the cost of living in the three cities may account for a large part of the rate differences, not commensurate differences in productivity.

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