Large Law Firm Bonus Season Arrives: What the Numbers Mean for the Emerging Legal Employment Market

Cravath, Swaine & Moore yesterday announced bonuses payable to its associates for all their hard work in 2010.  The bonuses are virtually identical to those paid to associates last year; those bonuses reflected a precipitous decline from the bonuses that associates had received for most of the decade.  This year’s bonuses range from $7,500 to $35,000 depending on seniority (last year’s top bonus was $30,000, while the lower ranges remained the same).  Today, Skadden Arps announced that it will match Cravath’s bonuses

For those less familiar with the annual bonus ritual, a primer.  First, Cravath is always one of the New York bonus market-makers.  While there is sometimes some early one-upsmanship on bonus numbers (I agree with The Wall Street Journal that this is unlikely to occur this year), virtually all major New York firms eventually settle on the same numbers.  And those numbers represent (with one exception) the top of the salary and bonus market.  Second, the New York City market represents (in absolute numbers, not in the value of the compensatory dollar) the top of the legal compensation market.  Uncharitably, one might say that I think that because I’m a former New York large firm lawyer—but it’s still true.

As is usually the case, I’m sure there will be a lot of grumbling about the size of the bonuses offered by large firms.  As a beneficiary of the much larger bonuses in the middle of the last decade and the sharply reduced amount last year, I guess I always felt that the bonus was always better than a sharp stick in the eye—better by exactly the amount of the bonus plus whatever it would have cost to get my eye fixed (I wasn’t a litigator, so the pain and distress thing never persuaded me).  Lawyer bonuses (as a percentage of total compensation) don’t have the heft of, say, banker bonuses.  The more important number for a firm lawyer will always be salary.

But the bonus numbers do have implications for the legal market and my clients applying to or in law school.  Moreover, even if you don’t want to practice in a large firm for the long term (or even the short term), these numbers are important, since large law firms remain the single most important driver of the legal market as a whole.

Here’s a basic piece of data: I don’t think there’s any question, based on the many conversations I’ve had with lawyers, that firm activity was considerably heavier in 2010 than it was in 2009.  That bonuses remained the same says something, but what?

In order of increasing importance for those considering a legal career, here’s what I think it says.  First, that law firms are traditionally slow at adapting to changes in the market.  That may account for something but not much.  Second, partners will replenish their own (and their firms’) bank account before turning to their associates’.  A bigger factor, probably, but still not the key.

Were I entering law school now, my bet would be that we’re seeing a long-term retrenchment in salaries and bonuses that firms anticipate paying associates.  That’s of a piece with the reduction in law firm numbers that we recently discussed.  Even if the revenues of law firms increase (other than another frenzied legal boom such as we saw from about 1999-2001 and 2003-2006, but who thinks there’s a high probability of that?), the bottom line is that law firms are likely try to consolidate productivity gains among their staff, i.e., fewer associates working harder to accomplish the same amount of work.  The most likely scenario for the next year or two—assuming an increase in law firm revenues—is slight increases in number of lawyers and bonuses, and almost no upward movement in base salary, the more important piece of lawyer compensation.

In other words, the heady days of most of the last decade—when we saw significant jumps in base salary, annual bonus numbers and law firm headcount—are over.  Not temporarily interrupted, not lying dormant waiting for a revival, but gone.  This year’s bonus numbers are more evidence of that.  What we’re likely to see now is incremental changes in one or two of the three important categories.  The news could be worse, of course, and if the economy shifts down again, may become worse.  Moreover, we’re not in an inflationary economy, so an incremental change in compensation—even if it’s just a small increase in year-end bonus and the normal annual seniority-based raises that law firm associates customarily receive—is worth something.  If you’re an entering law student or a current law student who is looking for and gets a large law firm job after graduation, you should just expect to work extremely hard for that compensation (even harder than your entering counterparts a few years ago), since law firms are likely to try to squeeze extra hours out of you before hiring another lawyer.

~ by Kyle Pasewark at Advise-in Solutions on November 23, 2010.

2 Responses to “Large Law Firm Bonus Season Arrives: What the Numbers Mean for the Emerging Legal Employment Market”

  1. […] Read more: Large Law Firm Bonus Season Arrives: What the Numbers Mean for the … […]

  2. Something these law firms may want to consider is providing their law team with total compensation statements, detailing their bonuses as well as other perks, like education reimbursement, free parking/transportation, etc.

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