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Fat Bonuses? Yes. Partnership? Fat Chance!

Vivia Chen

February 9, 2011

Money I don't get the logic: Big firms are lavishing associates with fat bonuses again, while, at the same time, signaling that their chances for partnership are worse than ever. Are firms sending associates a garbled message that essentially says: "We value you and want you to stay--but don't kid yourself that you'll have a future here"?

In recent weeks, firms have been tripping over each other by giving out so-called spring bonuses to their associates (see Above the Law for a summary of bonuses). As you might recall, some firms just forked over end-of-year bonuses about a month ago. It was only in late November that Cravath, Swaine & Moore announced bonuses ranging from $7,500 to $35,000. Then just over a week ago, it announced another round (up to $20,000 this time), to be paid in April. 

Besides Cravath, The Am Law Daily reports that "special bonuses" also await associates at Sullivan & Cromwell, Simpson Thacher & Bartlett, and Cleary Gottlieb Steen & Hamilton. And ATL now reports that Cadwalader, Wickersham & Taft is considering joining the springtime bonus club. Though the amounts vary a bit--they all add up to well into tens of thousands of dollars--close to $50,000 in some cases.

My head is spinning because I seem to recall how law firm managers were vowing to put a lid on those out-of-control associate salaries just a year ago or so (for the sake of the clients!). And weren't there some nasty layoffs at big firms and something called a recession?

Oh well, I guess the good times are back, and firms just want to show associates the love. It's all wonderful now, except that the prospects for a long-term relationship has never been bleaker. New York Law Journal's Nate Raymond reports: "Consultants say making partner has become more challenging in this economic environment, which has caused firms to trim their ranks of new partners and stretch out the partnership track."

That's a nice way of saying that partnerships these days are nasty and brutal. Deequitizing and firing partners have become the norm, which can't boost morale.

Some firms are barely making partners at all. Cravath, with just over 500 lawyers, made only one partner in 2010--though it's an improvement over 2009 when it made none. And check out these numbers: In 2010, Skadden made six partners (it has nearly 2,000 lawyers), Cleary four (1,123 lawyers), and Paul Weiss two (761 lawyers).

Granted, the odds of making partner at big firms--especially those super-elite, one-tier shops--were never great. But there's also no doubt that the odds have gotten worse and will likely stay that way. The consultants in the NYLJ article generally predict a smaller partner pool with longer tracks in the future. Dan DiPietro, chairman of Citi Private Bank's law firm group, expects "low single-digit growth in profits," says NYLJ.

Which brings up the question of why firms are dangling these bonuses in front of associates when there's still uncertainty in the air. Is the immediate competition that keen for midlevel associates? 

"I can't say with any reasonable certainty what has triggered the spring bonus phenomenon," says recruiter Katherine Frink-Hamlett of Frink-Hamlett Legal Solutions. "The lateral law firm market is heating up, but it's not sizzling by recruitment standards."

If the bonuses aren't about the supply and demand of associates, what gives? Says legal consultant Eve Birnbaum,"firms are telegraphing to the world, 'We had a great year and are doing well and have not been damaged by the economy.'" Recruiter Dan Binstock agrees: "Bonuses are about more than money; it’s about a firm demonstrating its power in the marketplace. And firms will go to great lengths to protect that perception."

Thank goodness the good old days are back and everyone is thinking rationally again. 

Related post: "Mad, Mad Money."

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There is nothing "about more than money" in BigLaw. The only thing the current round of bonuses proves is that firms -- and associates -- have once again found it easier to count than to think: firms are just renting a little loyalty and associates are just delaying their inevitable exit date. We've had a couple of years of "revenues down, profits up" at many firms. Gosh, what do think will happen next?

I'll throw in with another theory. Layoffs predominantly hit the more junior ranks. Now that work is starting to flow again, the junior ranks are thin. To keep profits per partner attractive, remaining associates were asked to do more for less. With the work flowing, opportunities to jump ship are flowing, too. If the mid-levels start jumping around, there will be a LOT of instability and disruption on top of the current disruption at the lower levels. What client is going to pay for the senior associates and partners to do all the work? What senior associates and partners are going to have the attention span to do the lower billing rate work? I say the extra bonuses help the firm look hale and hearty, but also help minimize mid-level disruption. It costs a lot more to integrate new talent than to throw a little money at your current talent.

Thanks, Vivia, for your funny, incisive final comment. It made my day!

All of this started because Sullivan & Cromwell was BLEEDING mid- and upper-level associates following the announcement of the crappy year-end bonuses. It's not about wealth-sharing, marketing or something altruistic, it was because morale was in the toilet. Firms had a considerably better year in 2010 vs. 2009, and made that money on the backs of fewer and fewer associates. Those associates worked harder, PPP and RPL went up, but the 2010 year-end bonuses matched the 2009 bonuses. Morale went in the toilet, mid-levels started leaving in droves, and partners suddenly realized that the cost to replace a quality mid-level (between training, catching someone up to speed and headhunter fees) was less than the cost to pay these spring bonuses. Simple math. That's also the reason they're not immediately payable, but all have been made payable at the end of April, forcing associates who want the bonus to stick around for a few more months.

We have one possible answer to consider. Associates who receive bonuses are just collateral beneficiaries of the firms' marketing efforts. Firms pay bonuses because they want to appear hale and healthy and impress the next class of junior lawyers. There really is no retention component to the bonuses. It's just "thanks for your service, here you go, feel free to move on." We wrote about it here
and here

It is amazing how much the economy has changed the way these companies work.

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The Careerist takes an inside look at how lawyers shape their careers and manage their lives. The blog aims to dissect developments in the profession, provide useful information and advice, and give lawyers a platform to voice their views. The goal is to provide a fresh, provocative take on the state of lawyering.

About Vivia Chen

Vivia Chen

Vivia Chen, The Careerist's chief blogger, has been covering the business and culture of law firms for a decade. A former corporate lawyer, Chen is fascinated by those who thrive (as well as those who don't) in the legal profession. Her take: Success in the law (and life) doesn't always travel a linear path. If you have topics you'd like to discuss or information to share, contact her: [email protected]

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