Associate Bonus Watch 2007, Biglaw, Bonuses, Money, Skaddenfreude

Associate Bonus Watch: O'Melveny & Myers Defends Its 'Below-Market' Bonuses

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As you may recall, the reaction of ATL readers to the bonus announcement of O’Melveny & Myers was decidedly unfavorable. Now the Daily Journal (subscription) — in an article entitled “O’Melveny & Myers’ Below-Market Bonus Disappoints Associates,” by Maya Meinert and Rebecca Cho — has taken notice:

This week’s bonus announcement from Los Angeles-based firm O’Melveny & Myers has caused much dismay among associates in the firm’s California and Washington, D.C., offices – the law blog AboveTheLaw.com’s post on the subject generated more than 200 comments – because the standard bonuses remain unchanged from last year and are well below what is considered “market,” based on New York numbers.

Should other major players in California pay more, O’Melveny could feel the impact among its associate ranks, industry observers said.

According to a memo obtained by AboveTheLaw.com, O’Melveny’s standard bonuses range from $27,500 for first-year associates to $45,000 for those in their seventh year and beyond. The bonuses are tied to a rating system based on the firm’s expectations and a minimum billable-hour requirement of 1,950.

More excerpts and discussion, including the firm’s reaction when contacted by the Daily Journal, appears after the jump.


OMM’s official representatives generally don’t respond to our inquiries about compensation matters. But they apparently are willing to speak to our fancy cousins in the print media:

Brian Brooks, O’Melveny & Myers’ hiring partner, said Wednesday he is satisfied with the firm’s bonus numbers and believes they will measure up to standards at other big Los Angeles firms.

“We paid a class bonus that’s competitive, and we paid the top performers substantially more than California firms were able to pay last year, and we’re proud of that,” Brooks said.

He said it was difficult to compare O’Melveny’s bonus amounts to other firms’ based solely on the base amounts because O’Melveny does not operate in a lockstep system, unlike many New York firms, including Cravath. In addition to the class bonuses, the firm will pay higher differentials depending on associate performance quality and productivity, according to the memo.

But just because you don’t use a lockstep system doesn’t mean you can’t approximate — or beat — the market. See, e.g., Kirkland & Ellis’s bonuses.
Okay, back to O’Melveny:

For example, a third-year associate with a standard bonus of $32,500 who “significantly” exceeded firm expectations will receive $39,000 this year, compared with $37,000 last year. About 35 percent of O’Melveny associates and counsel qualify for higher bonuses than the base, according to the memo.

Brooks said the firm’s bonuses this year are higher overall than the previous year’s bonuses. The highest paid associate last year received around $90,000 in bonus compensation, compared with two associates who are being paid $125,000 this year, he said.

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Interesting factoid. The most senior associates in New York firms generally get $115,000 in bonuses ($65,000 year-end plus $50,000 special). On the other hand, first-year associates at Wachtell Lipton — from the class of 2006, not stub-year folks — got $165,000 in bonus money (on top of $165,000 in base salary).

[Brooks] said he is not worried that other Los Angeles firms may top O’Melveny’s total bonus package.

“To be quite honest, I don’t they think will come out with higher bonuses,” Brooks said.

Gibson and Latham, did you hear that? O’Melveny is throwing down the gauntlet.

Los Angeles powerhouse Gibson, Dunn & Crutcher is rumored to have decided its year-end bonuses, with speculation that the bonuses are near New York levels. Gibson Dunn managing partner Kenneth M. Doran could not be reached for comment, but a firm representative said that the firm’s associates will be notified of their bonuses by the end of the week.

Courtney A. Goldstein, who heads associate recruitment for legal search firm Major, Lindsey & Africa’s Southern California office, said Wednesday that Gibson Dunn historically pays one of the highest bonus amounts among California firms.

Latham & Watkins’ bonus numbers will be released at the end of January, a firm representative said.

The article points out that OMM is typically a follower rather than a leader on associate compensation matters:

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O’Melveny was one of the last of the California firms to match the first-year associate base salary bump-up to $160,000 earlier this year. The firm’s lower standard-bonus scale is a reflection of a conservative approach, [legal recruiter Courtney] Goldstein said.

If other large Los Angeles firms come out with better bonuses than O’Melveny, the firm could take a hit in recruiting young talent, Robert Williams, hiring partner at Los Angeles firm Sheppard, Mullin, Richter & Hampton, said Wednesday.

“Law students have a hard time assessing differences in working conditions,” Williams said. “They tend to be very influenced in differences in pay.”

There is some truth to that. But it may also be the case that working conditions from one large law firm to another don’t differ that much. So why not try to get better pay for similar work?
O’Melveny & Myers’s Below-Market Bonus Disappoints Associates [Daily Journal (subscription)]

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