NEW YORK, Dec 8 (Reuters) - On Nov. 28, the New York-based
law firm Cravath, Swaine & Moore told its staff that 2011
year-end bonuses would be almost identical to those for the
previous two years. At the low end, first-year associates will
receive $7,500, while seventh-year associates will get
Other firms quickly fell into line, as they have tended to
do each year following Cravath's announcement, which is
traditionally the first of the bonus season. News of the
Cravath numbers, first reported by the Wall Street Journal's
Law Blog, was soon followed by announcements of similar rates
from Skadden, Arps, Slate, Meagher & Flom; Milbank, Tweed, Hadley & McCloy; Shearman & Sterling; and Proskauer Rose.
The only problem is that major law firms are actually
making more money in 2011 than they did in 2010. According to a
Wells Fargo Wealth Management survey released in September,
profits per partner at 125 of the nation's largest law firms
rose 7.6 percent for the first half of the year, and revenue
increased 4.5 percent. A survey released by the American Lawyer
on Dec. 1 revealed that 84 percent of law firm leaders said
that they expected profits per partner to rise next year.
So if profits are up and expected to keep rising, why are
associate bonuses staying the same?
Part of the reason, say attorneys, consultants and legal
bloggers, is simple image management. In a sluggish economy
that affects many clients, and with the Occupy Wall Street
movement protesting wealth disparity around the country, some
firms are wary of how it looks to dole out piles of cash to
"I think there is a sensitivity there," said Leroy Inskeep,
head of the associate compensation committee at DLA Piper.
"We've got clients who are struggling. They don't want to see
Inskeep said big law firms are "part of Wall Street," and
that the Street's reputation of excess extends to them as well
as the investment banks.
'AN UNDERLYING GREED'
That attitude marks a noticeable shift from prerecession
days, when law firms viewed associate bonuses as a kind of
bragging right -- a signal to other firms, clients and
potential lateral hires that they were competitive, said Bruce
McEwan, a law-firm consultant and editor of the blog Adam
Smith, Esq. In 2007, Cravath gave $35,000 to first-year
associates and up to $110,000 for senior associates --
eye-popping numbers that other firms were nevertheless quick to
Competitive bonus rates also helped firms hang on to
associate talent, which was relatively scarce during the boom
years of 2004 to 2007, McEwan said.
But now firms are on "red alert" about handing big checks
to already well-compensated associates, he said.
The glut of associates now on the market helps too, said
former Kirkland & Ellis partner Steven Harper, who retired in
January after 30 years at the firm. In 2009, when law-firm
layoffs peaked, about 4,600 attorneys lost their jobs at large
firms nationwide, according to the Layoff Tracker, a website
that reports law-firm employment data.
But Harper, who now edits the blog Belly of the Beast and
is an adjunct professor at Northwestern University School of
Law, said that firms' newly found sensitivity also provides a
convenient excuse for partners to keep more money for
"First and foremost, there is an underlying greed. That is
the overriding aspect," Harper said.
Bill Lee, co-managing partner at Wilmer Cutler Pickering
Hale and Dorr, disagreed, and said this year's bonuses reflect
more long-term thinking by law firms.
"Leading law firms do not micro-manage bonus levels with a
false precision to the profit levels for a given year," Lee
said. "Instead, those firms consider the longer term need to
fairly and competitively compensate the young lawyers who are
Wilmer Cutler, which uses a merit-pay bonus system, has not
yet announced its 2011 bonuses.
At least a couple firms haven't been concerned with the
perception issue: Boies Schiller & Flexner is giving out
bonuses from $75,000 for associates who have been with the firm
at least a year, up to $200,000 for its highest performers.
And litigation boutique Susman Godfrey, which has
traditionally handed out the biggest year-end bonuses -- and
which, unlike large corporate law firms, takes about half its
cases on a contingency basis -- gave out bonuses in 2010
ranging from $45,000 to more than $100,000, according to the
legal blog Above The Law. Ten associates received bonuses of
about half their salaries.
Susman partner Bill Carmody said that the sheepishness that
some firms feel now about lavishing big bonuses on young
attorneys isn't part of his firm's equation. "I don't think
it's going to hit the calculus for our firm." Referring to
associates, he said, "We appreciate the people who helped us
with the income we've made."
Carmody said the firm's bonuses, which it will hand out in
January, "are going to come around last year's numbers."
Some associates say all the jockeying over bonuses, in both
directions, sends mixed messages.
"On the one hand, firms put out this image that they're
doing fine," said a fifth-year associate at a New York law firm
who requested anonymity because she was not authorized to speak
for her firm. "On the other hand, we understand with Occupy
Wall Street that the public isn't going to look kindly on
lawyers making big bonuses at the end of the year. It's a
'IT'S ABOUT DIVIDING THINGS UP FAIRLY'
Regardless of the reason, the associate said, the issue is
not just about dollars, but fairness.
"I don't think there are many associates who would tell you
we deserve more money," the associate said. "It's about
dividing things up fairly. It's unfair to characterize it as an
argument that we just want more money."
In 2007, Cravath's first-year bonus was just over 1 percent
of the firm's profits per partner of $3.3 million, according to
The American Lawyer; in 2010, that percentage had decreased to
0.23 percent, while partner profits were down just slightly --
to $3.17 million. If 2011 profits are higher than 2010, as
expected, this year's bonuses will constitute an even smaller
percentage of profits.
Cravath attorneys declined to comment for this story, but
in the end, what happens there is more likely to have an impact
on bonus structures than any fear of bad public relations.
Given the right conditions, law firms would change course
in a heartbeat, the chairman of a major U.S. law firm told
Reuters. "If Cravath did it, we'd all get over it," he said.
(Reporting by Leigh Jones)
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