Biglaw, Bonuses, Money, Skaddenfreude

Skaddenfreude: Here’s the Orrick Memo

Orrick Herrington Sutcliffe LLP Above the Law blog.JPGHere is a memo that some of you have been waiting for, with an eagerness more typical of teenage boys expecting Spiderman 3. It’s an outline of the associate bonus program for Orrick, Herrington & Sutcliffe, in all of its complex glory.
The memo is rather lengthy. We thought about taking screenshots of each page, but that would have been too time-consuming. So we just cut and pasted the text instead.
Some of the formatting was lost as a result (as well as the pretty green “O” at the top of each page in the original). But the substance of the memo is all there.
If you’re interested, you can check it out after the jump

TO Associates in U.S. Offices
FROM Tom Coleman, Partner in Charge of Lawyer DevelopmentLaura Saklad, Chief Lawyer Development Officer
DATE April 6, 2007
RE 2007 Associate Bonus Program for U.S. Offices
This year we decided to take a fresh look during the first quarter at our bonus program for associates in our U.S. offices. As part of this process, we held meetings with associates in each of these offices to find out what you liked and did not like about our 2006 bonus program and to discuss the pros and cons of other approaches. Many of you participated in these meetings. We greatly appreciate your participation. Your comments were very helpful to us and greatly influenced the changes we recommended to firm management. We also would like to thank all of you for your patience. We think the time spent has been worthwhile.
Attached to this memo as Attachment 1 is a description of the 2007 bonus program for both associates and of counsel in our U.S. offices. Set forth below in this memo are brief descriptions of the process we followed in reviewing the associate bonus program, the goals we concluded we would like to achieve for that program and the principal changes from the prior associate bonus program.
A. Process.
· As indicated above, we met with associates in each U.S office to get their input.
· We solicited the views of partners at the Annual Partners Meeting in February, in other group meetings and through individual discussions.
· We gathered as much information as we could about the bonus programs of our major competitors.
· We analyzed the impact that different types of bonus programs would have in various areas that are necessarily important to the firm and its clients, including many that are not quantifiable, such as recruiting, retention and morale, and some that are, such as costs.
B. Goals.
We began the process with certain goals in mind for the bonus program, but, as we went through the process, some of these goals changed or the priorities we gave them changed, and some new ones emerged. By the end of the process, we had identified the following as some of the most important:
· We need a bonus program that is competitive with the bonus programs of our major competitors.
· We need to reduce the emphasis our old system placed on hours, especially the incentives it seemed to provide for associates to work hours that we believe are excessive.
· Although we do not want to provide incentives for associates to work excessive hours, our bonus system should provide some reward for those associates who work significantly more hours than we target for associates generally as an acknowledgement of their efforts on behalf of the firm and our clients.
· We should have a quality of work or performance element in our bonus system, but it should apply only for more senior associates and should be tied to PDC reviews.
· Although we may need to have some subjective elements in our bonus program, the more clear, objective standards we can provide and the more certainty we can provide about the level of bonus that may be available for associates who meet some base level of performance, the better.
· We should continue to treat pro bono work like billable work in our bonus program.
· If possible, we would like to have the same bonus program for each U.S. office.
· In addition to the foregoing and other goals, the firm must of course take into consideration the costs of any bonus program. We would like to emphasize, however, that the review of our bonus system was undertaken to improve it, not to reduce its costs. In fact, it was clear to us from the start that, while we needed to be mindful of costs, we would recommend and firm management would approve a bonus program that would be more generous than our old program. And that is the case.
It would be a relatively simple matter to design a bonus system that achieves any one of the goals mentioned above and ignores the others. The trick is of course to design a system that achieves the right balance among all of them.
C. Changes.
The principal changes to the bonus system are the following:
· The biggest change is that we have moved a large portion of the bonus dollars available at each compensation level to a standard bonus that will be paid to all associates in good standing who achieve 2000 client representation hours during the year. These bonuses will range from $25,000 for first-years to $50,000 for eighth-year and more senior associates.
· We will apply the discretionary bonus in a manner so that associates who receive the standard bonus and also reach 2100 client representation hours will receive a total bonus that is either equal or close to the most recent bonuses paid by New York firms.
· We have tried to de-emphasize hours in determining bonuses, at least for client representation hours above 2100, by (1) front-loading bonus dollars as mentioned above, and (2) eliminating the concept of “hours-based bonuses” as such, the 100-hour increments for them and the fairly significant bonus amounts set for each of these increments.
· We will continue as we have for several years to award some portion of the discretionary bonus based upon quality of legal work, but now will do so (1) only for fifth-year and more senior associates and (2) based upon a PDC review rating of “excellent.”
· We will have the same bonus program for each U.S. office.
· We have replaced the concept of “PDC hours” with “client representation hours” where hours continue to be a factor in determining bonuses. Client representation hours consist of:
o client billable work;
o pro bono work; and
o work for Orrick as a client.
They do not include hard or other business development hours or training. We will continue to treat pro bono and work for Orrick as a client the same as client billable work, however, because (a) of our continuing commitment to pro bono and (b) both represent legal work for clients.
o We may in certain instances reward extraordinary efforts in business development and training with some portion of a discretionary bonus through the administrative contribution element of the discretionary bonus.
o Also, to manage the transition this year, all hard business development and training hours recorded in the first quarter that would have constituted PDC hours in the past will be counted as client representation hours this year.
Thank you again for your patience and your input. We would like to continue the dialogue we began in connection with the bonus review process this year. In particular, we would like your feedback on the new bonus program which will be useful to us when set the bonus program for 2008. We will hold another series of meetings in each U.S. office next week to answer any questions you have.
cc: U.S. Partners
Reid Horovitz
Josh Rosenfeld
Brian Schare
Attachment 1
In determining whether to award any bonus for any associate or of counsel, the PDC will continue to require that the overall quality of the attorney’s performance meets the firm’s usual high standards. In most cases, the PDC will look to an attorney’s most recent PDC review to determine whether he/she is satisfying this requirement. Although the level of an attorney’s time commitment to the firm as reflected in his/her hours may be a factor in the determination of some bonuses, the PDC will not award bonuses for work that does not meet these standards.
The 2007 bonus program for associates on our regular compensation schedule will consist of two basic components—a standard bonus and a discretionary bonus. The amount of the standard bonus and the range of discretionary bonuses available for each associate compensation level are set forth in the chart attached to this memo as Exhibit A.
A. Standard Bonus. Associates who are in good standing and achieve 2000 client representation hours during the year will receive the standard bonus for associates at their compensation level as set forth in Exhibit A.
1. Good Standing. Associates who received a very good or excellent rating in their most recent PDC review generally will be considered to be in good standing.
2. Client Representation Hours. “Client representation hours” include hours devoted to client billable work, pro bono work and work representing Orrick as a client.
(a) Client Billable. This category is generally clear.
(b) Pro Bono. Time spent on pro bono legal work will be credited if such work is on a matter that has been approved by Jill Rosenberg, the firm’s Pro Bono Partner, a separate matter number is established for the matter and appropriate supervision exists on the matter.
(c) Orrick as the Client. Time spent on legal work performed where Orrick is the client will be credited if such work is approved by the General Counsel, a matter number is established and appropriate supervision exists on the matter.
B. Discretionary Bonus. All associates who qualify for a standard bonus also will be eligible for a discretionary bonus. The discretionary bonus component of the bonus program is intended to allow the firm to reward those extraordinary contributions that go well beyond the outstanding work and other billable and non-billable activities we expect all attorneys to perform. We expect to award discretionary bonuses in four distinct categories: for business generation, for exceptional administrative contributions, for hard work that goes well beyond the 2000 client representation hours required for the standard bonus, and for senior associates, extraordinary legal work, not just the outstanding work we expect from all attorneys.
1. Business Generation. An associate will be considered for a discretionary bonus under this category if he/she is the person primarily responsible for bringing in new work and that work generates significant legal fees collected during the year.
2. Exceptional Administrative Contributions. Discretionary bonuses may awarded under this category for those administrative contributions that are exceptional, both in terms of time spent and the value of the contribution to the firm. (In some instances, we may consider under this category “hard business development” and training activities that previously would have been treated as PDC hours under our prior bonus program.)
3. Hard Work. Associates who are in good standing and perform 2100 client representation hours will receive, in addition to the standard bonus, a discretionary bonus of at least $10,000 if they are in classes 1-4 or $15,000 if they are more senior. Additional discretionary bonus amounts may be awarded for client representation hours beyond 2100, but the amounts will be less significant.
4. Extraordinary Legal Work. Associates who are fifth-year or more senior may receive some portion of the discretionary bonus on the basis of extraordinary legal work. Generally, we will determine that an associate is performing at this level if he/she has received an excellent rating in his/her most recent PDC review.
An associate is not likely to receive the maximum discretionary bonus available on the basis of just one of these categories but may through various combinations of the categories.
C. Associates On Alternative Work Schedules. Associates who are on alternative work schedules are generally eligible to receive pro rata standard bonuses based upon their pro rata time commitments. For example, an associate with a 90% time commitment would be eligible for 90% of the standard bonus for his/her compensation level if he/she is in good standing and achieves 1800 client representation hours.
The 2007 bonus program for of counsel and certain senior associates not on the regular associate compensation schedule will continue to be determined as they have been in the past. Bonus awards for these attorneys are entirely discretionary. They are individually set based upon the attorneys’ overall contributions to the firm. In awarding bonuses for these attorneys, the PDC considers a number of factors, including, among others, expertise, productivity, business generation, years of experience, base salaries and profitability.
Time worked during a month must be entered and released in DTE before the cut-off for that month—typically 5:00 p.m. local time on the first business day of the following month. Bonuses for attorneys who fail to comply with this policy may be reduced or eliminated. Penalties for late hours in the past have ranged from $500 – $5,000. Exceptions will be rare and will require the approval of the applicable Practice Group Leader and Managing Director. Requests for such exceptions should be made directly to your Practice Group Leader immediately after the close of the month in which the late hours were worked. Approved exceptions should be communicated to Karolyn Herrmann promptly.
Although the month-end policy referred to in the preceding paragraph deals only with attorneys who fail to enter and release time before the month-end cut-off date, attorneys should never wait until the end of the month to release their time. Firm policy is that each attorney should enter and release time on a daily basis. Consequently, in determining the bonus for any attorney who fails to comply with the month-end policy, the PDC also will consider the attorney’s compliance with the daily policy.
At present, we anticipate that 2007 bonuses will be determined early in 2008. The process includes the PDC’s solicitation of input from Practice Group Leaders and Managing Directors, the formulation by the PDC of a schedule of bonus recommendations for the Executive Committee, and approval by the Executive Committee.
A. Leaves of Absence. Whether an associate on the regular compensation schedule who is out of the office for part of the year on a leave of absence (“LOA”) will be eligible for a standard bonus will be determined by the following guidelines:
1. Disability LOA (Including Maternity LOA). If the associate is out of the office for part of the year on a maternity or other disability LOA, he/she will be eligible for a prorated standard bonus based upon a prorated hours targets. (For example, if a full-time associate is on a disability LOA for two months, he/she will be eligible for a standard bonus that is 10/12 or 83.33% of the normal standard bonus if his/her client representation hours for the year are 1667 (83.33% of 2000).)
2. Unpaid Childcare LOA/Paid Paternity LOA. If the associate is out of the office for part of the year on an approved unpaid childcare LOA not exceeding six months or a paid paternity LOA, he/she also will be eligible for a prorated standard bonus based upon a prorated hours targets computed in the same way as for associates on a disability LOA. (See the example above.)
3. Bar LOA. If the associate is out of the office for part of the year on a bar LOA, he/she will be eligible for a full standard bonus but only if he/she meets the usual hours targets. In other words, there is no proration of the standard bonus or target.
4. Other LOA. If the associate is out of the office for part of the year on any other type of LOA (including a personal unpaid LOA), any bonus decisions will be made on an ad hoc basis by the PDC in its discretion.
B. First-Year Associates. First-year “Fall” associates are not eligible for a bonus for the calendar year they commence employment with the firm.
C. Attorneys Who Join the Firm After January 1, 2007. Attorneys who join the firm after January 1, 2007, but before October 1, 2007, will be eligible for prorated standard bonuses based upon their start dates. Attorneys who join the firm on or after October 1, 2007, are not eligible to receive a bonus for 2007.
D. Continuing Employment. Only associates and of counsel who continue to be actively employed by the firm on the date awards are distributed are eligible to receive bonuses.
We would like to thank each of you for your efforts and contributions to the firm’s continuing success. Any questions about the compensation program can be directed to Karolyn Herrmann (x5907).
Exhibit A
Level Standard Bonus Discretionary Bonus Maximum Bonus
1 $25,000 Up to $20,000 $45,000
2 $30,000 Up to $20,000 $50,000
3 $35,000 Up to $20,000 $55,000
4 $40,000 Up to $20,000 $60,000
5 $40,000 Up to $35,000 $75,000
6 $45,000 Up to $35,000 $80,000
7 $45,000 Up to $35,000 $80,000
8+ $50,000 Up to $35,000 $85,000
See accompanying memo for details.
Exhibit B
1. Writing Ability — ability to express thoughts in an organized, clear and concise manner; is precise and thorough in analysis and drafting.
2. Oral Presentation — ability to express thoughts verbally in an organized, clear and concise manner.
3. Research and Legal Reasoning– ability to provide a thorough, complete response to identified problem or issue; locates all relevant legal authority efficiently, appreciates the significance of fact or legal authorities and employs a practical approach and creativity in analysis and problem solving.
4. Efficiency and Productivity — ability to work efficiently, effectively and productively.
5. Knowledge of Field — for someone at this experience level, has developed recognizable expertise and competence in field of specialization.
6. Initiative and Judgment — is dedicated, highly motivated and industrious; follows through on projects, meets deadlines and needs minimum supervision for someone at this attorney’s level; deals maturely with a variety of situations.
7. Team Effort – contributes to an environment of cohesiveness and mutual support and is a team player; is cooperative, reasonable and pleasant; works well with other lawyers and staff and contributes to an efficient and pleasant working environment.
8. Delegation and Project Management – demonstrates an ability to supervise and to delegate effectively to more junior lawyers and to effectively manage cases or transactions whether in whole or in part.
9. Client Relationships/Business Development Skills — maintains good rapport with clients and works well with them; is tactful, personable and inspires their confidence; for senior associates, exhibits ability to attract new clients and to develop new business from existing clients, and has an interest in doing so.
1. Competence – demonstrates senior-level competence in his/her practice area (i.e., has the knowledge and ability to deal confidently with matters in his/her practice area; is an expert in his/her field); handles senior-level work and responsibility in his/her area without supervision.
2. Efficiency and Productivity – ability to work efficiently, effectively and productively.
3. Judgment – consistently demonstrates good judgment in the practice of law.
4. Delegation and Project Management – demonstrates an ability to supervise and to delegate effectively to more junior lawyers and to effectively manage cases or transactions whether in whole or in part.
5. Business Development Skills – exhibits ability to attract new clients and to develop new business from existing clients, and has an interest in doing so.
6. Client Satisfaction – inspires confidence in clients to the degree that clients will unhesitatingly bring additional work to that lawyer and recommend him/her to others.
7. Team Effort – contributes to an environment of cohesiveness and mutual support and is a team player; is cooperative, reasonable and pleasant; works well with other lawyers and staff and contributes to an efficient and pleasant working environment

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