The Search --> Compensation

The Bonus Question

Most major law firms pay associate bonuses during the months of January and February. Given the tight economy, as this new year begins many attorneys are wondering: how much will my bonus be? Or, will there be any bonus at all? And, underlying those questions is: what does the amount of the bonus, or lack thereof, say about the firm’s opinion of me, or, about the health and future of the firm itself?

In boom years, most law firms shared the wealth. With competition among the top firms and with mass defections to dot-coms, law firms used hefty bonuses to lure and retain the best talent. The amount of associate bonuses also became a way to establish or reinforce the pecking order among the law firms. Those with the most prestige or highest profits communicated their preeminence to the legal community via the generosity of their associate bonuses. Now that the boom times are over, at least for a while, many law firms cannot afford to pay those bonuses. That has the associate ranks and the legal community very interested in what will happen next, and what it all means.

In 2000, when times were good, bonuses ranged from $35,000 to $40,000 for junior associates to up to $100,000 for senior associates at the top firms—a not insignificant part of the compensation package. Last year, most major firms did award bonuses but they were about half of that amount, and the fear is that this year’s bonuses will be even smaller or non-existent. If you ask the management of large law firms what they intend to do about bonuses this year, virtually all would say that the subject is under consideration and that they are waiting to see what the other firms will do. Some firms have begun the process of announcing their bonuses.

Cravath Swaine & Moore, a New York law firm that often sets the pace in compensation issues announced in mid-November its 2002 year-end bonuses ranging from $15,000 for first year attorneys to $25,000 for senior associates. This is down from last year and less than half of the bonuses given in 2000. Cravath also warned that there may be further reduced bonuses, or none at all, in 2003. Fried Frank Harris Shriver & Jacobson, another large New York based law firm, recently announced that it would match Cravath’s bonus numbers, as did Chadbourne & Parke. Weil Gotschal & Manges will pay bonuses to its US associates ranging between $15,000 and $40,000, depending upon seniority and performance. Most of the other major firms that have announced their bonus numbers fall somewhere within that range, with some sweetening the pot a little more for those associates who bill over a certain (high) threshold of hours.

In Washington, DC, Howrey Simon Arnold & White announced that more than half of its associates are expected to receive bonuses ranging from $10,000 to $60,000 depending upon a combination of merit and hours billed with a minimum of 1,950 hours. Associates at Wilmer Cutler & Pickering who bill more than 2,000 hours are eligible for profit sharing units worth $14,000 to !5,000 each. At Arnold & Porter, associates who bill more than 2,400 hours can receive bonuses between $25,000 and $50,000. And, at Arent Fox Knitner Plotkin & Kahn, bonuses of up to $40,000 will be paid to associates based on hours and merit, with bonuses at 1,900, 2,050 and 2,200 hours.

In Silicon Valley, Wilson Sonsini is rethinking its bonus structure, but has not announced any numbers as yet. The firm is considering linking bonuses to billable hours for the first time in its history. Until now, it has paid out quarterly productivity bonuses, but had not used hours as a measure of performance.

The very definition of bonus as a payment given to employees at the end of a year in which the employee and/or the company performed very well, or given in addition to the required or customary amount, leads to the conclusion that a bonus is discretionary rather than an entitlement. However, given the practice of law firms over the past several years, associates have come to view year-end bonuses as an expected part of their compensation package. In many associates’ minds, it is no longer a question of if they will receive a bonus, but of how much it will be.

To counterbalance these expectations, and to deal with the economic realities, many firms have made efforts to have associates earn their large bonuses by tying bonus amounts to certain billable hour thresholds, or looking at the associate’s “contribution to the firm”, or a combination thereof. Some firms require over 2400 billable hours per year to attain the top of the bonus structure. This year, especially for corporate associates or for those in areas of practice particularly hard-hit by the economic recession, finding enough work to just meet minimum billable requirements is a challenge, let alone billing enough to earn the largest bonuses. To adjust for these economic realities, Orrick, for example, increased the hours needed to earn the minimum bonus but reduced the hours required to qualify for the top bonus. Following a year of layoffs, diminishing or disappearing bonuses lead to fears that the firms are in serious trouble, and further layoffs are possible, especially if associates’ billable hours are down.

Some firms, such as Latham & Watkins, Irell & Manella, and the Venture Law Group assign participation points to associates much as partners receive in most law firms. Where participation points are used for associates, their year end compensation will be determined to some degree by the profitability of the firm rather than by the individual’s performance, per se.

Although virtually all firms have annual performance reviews, money talks. If an associate received a smaller bonus than other colleagues at the firm, he or she needs to be asking what message is being sent. If the reduced bonus was due to low billable hours, that problem needs to be addressed. Perhaps the associate needs to be more assertive in asking for work, or should inform the partners of a desire to work on a wider variety of matters. If those efforts do not result in a heavier workload, the associate must seriously assess his or her future with the firm. Either the firm is experiencing financial difficulty, or the associate is not one of the “go to” attorneys in the firm. Either way, unless the situation can be remedied quickly, it might be time to dust off the resume and evaluate career opportunities elsewhere.

The Search --> Compensation The Bonus Question Most major law firms pay associate bonuses during the months of January and February. Given the tight economy, as this new year begins many attorneys are wondering: how much will my bonus be? Or, will there be any bonus at all? And, underlying those questions is: what does the amount of the bonus, or lack thereof, say about the firm’s opinion of me, or, about the health and future of the firm itself? In boom years, most law firms shared the wealth. With competition among the top firms and with mass defections to dot-coms, law firms used hefty bonuses to lure and retain the best talent. The amount of associate bonuses also became a way to establish or reinforce the pecking order among the law firms. Those with the most prestige or highest profits communicated their preeminence to the legal community via the generosity of their associate bonuses. Now that the boom times are over, at least for a while, many law firms cannot afford to pay those bonuses. That has the associate ranks and the legal community very interested in what will happen next, and what it all means. In 2000, when times were good, bonuses ranged from $35,000 to $40,000 for junior associates to up to $100,000 for senior associates at the top firms—a not insignificant part of the compensation package. Last year, most major firms did award bonuses but they were about half of that amount, and the fear is that this year’s bonuses will be even smaller or non-existent. If you ask the management of large law firms what they intend to do about bonuses this year, virtually all would say that the subject is under consideration and that they are waiting to see what the other firms will do. Some firms have begun the process of announcing their bonuses. Cravath Swaine & Moore, a New York law firm that often sets the pace in compensation issues announced in mid-November its 2002 year-end bonuses ranging from $15,000 for first year attorneys to $25,000 for senior associates. This is down from last year and less than half of the bonuses given in 2000. Cravath also warned that there may be further reduced bonuses, or none at all, in 2003. Fried Frank Harris Shriver & Jacobson, another large New York based law firm, recently announced that it would match Cravath’s bonus numbers, as did Chadbourne & Parke. Weil Gotschal & Manges will pay bonuses to its US associates ranging between $15,000 and $40,000, depending upon seniority and performance. Most of the other major firms that have announced their bonus numbers fall somewhere within that range, with some sweetening the pot a little more for those associates who bill over a certain (high) threshold of hours. In Washington, DC, Howrey Simon Arnold & White announced that more than half of its associates are expected to receive bonuses ranging from $10,000 to $60,000 depending upon a combination of merit and hours billed with a minimum of 1,950 hours. Associates at Wilmer Cutler & Pickering who bill more than 2,000 hours are eligible for profit sharing units worth $14,000 to !5,000 each. At Arnold & Porter, associates who bill more than 2,400 hours can receive bonuses between $25,000 and $50,000. And, at Arent Fox Knitner Plotkin & Kahn, bonuses of up to $40,000 will be paid to associates based on hours and merit, with bonuses at 1,900, 2,050 and 2,200 hours. In Silicon Valley, Wilson Sonsini is rethinking its bonus structure, but has not announced any numbers as yet. The firm is considering linking bonuses to billable hours for the first time in its history. Until now, it has paid out quarterly productivity bonuses, but had not used hours as a measure of performance. The very definition of bonus as a payment given to employees at the end of a year in which the employee and/or the company performed very well, or given in addition to the required or customary amount, leads to the conclusion that a bonus is discretionary rather than an entitlement. However, given the practice of law firms over the past several years, associates have come to view year-end bonuses as an expected part of their compensation package. In many associates’ minds, it is no longer a question of if they will receive a bonus, but of how much it will be. To counterbalance these expectations, and to deal with the economic realities, many firms have made efforts to have associates earn their large bonuses by tying bonus amounts to certain billable hour thresholds, or looking at the associate’s “contribution to the firm”, or a combination thereof. Some firms require over 2400 billable hours per year to attain the top of the bonus structure. This year, especially for corporate associates or for those in areas of practice particularly hard-hit by the economic recession, finding enough work to just meet minimum billable requirements is a challenge, let alone billing enough to earn the largest bonuses. To adjust for these economic realities, Orrick, for example, increased the hours needed to earn the minimum bonus but reduced the hours required to qualify for the top bonus. Following a year of layoffs, diminishing or disappearing bonuses lead to fears that the firms are in serious trouble, and further layoffs are possible, especially if associates’ billable hours are down. Some firms, such as Latham & Watkins, Irell & Manella, and the Venture Law Group assign participation points to associates much as partners receive in most law firms. Where participation points are used for associates, their year end compensation will be determined to some degree by the profitability of the firm rather than by the individual’s performance, per se. Although virtually all firms have annual performance reviews, money talks. If an associate received a smaller bonus than other colleagues at the firm, he or she needs to be asking what message is being sent. If the reduced bonus was due to low billable hours, that problem needs to be addressed. Perhaps the associate needs to be more assertive in asking for work, or should inform the partners of a desire to work on a wider variety of matters. If those efforts do not result in a heavier workload, the associate must seriously assess his or her future with the firm. Either the firm is experiencing financial difficulty, or the associate is not one of the “go to” attorneys in the firm. Either way, unless the situation can be remedied quickly, it might be time to dust off the resume and evaluate career opportunities elsewhere.	Hot Tips The Search Planning Your Search Assessing Your Marketability Resumes and Cover Letters Interviewing Strategies Special Circumstances Following Through Compensation Making the Transition Career Development Getting Ahead In a Down Market Making Partner Hot Practice Areas Law Firm Economics California Legal Market View our most recent Hot Tip - Silent Eloquence, posted 7/13/10 The California Bar Exam Listen to Your Recruiter Check out our new book, "The Right Moves: Job Search and Career Development Strategies for Lawyers"

© Copyright 1997 - 2010 Seltzer Fontaine Beckwith: Legal Search Consultants