Biglaw, Money

Do Clients Care About Associate Bonuses? Answer = No

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Are you still trying to catch your breath from the bonus announcements at Skadden and Half-Skadden (f/k/a Cravath)? Or are you waiting patiently for S&C to “settle” this bonus debate among top firms? Either way, most people are still just trying to understand why Cravath low-balled the market yesterday.

A couple of days ago we mentioned a theory that has become very popular over the last 18 hours: firms are going to give low bonuses to look responsible to their clients. On Tuesday, we explained the theory like this:

So, reason one: If they give you a bonus, you might tell someone, um, like Above The Law. And reason two: pressure from clients to control costs. Anonymous firm leaders say they fear the effect a big bonus announcement would have on their fee negotiations with belt-tightening clients, especially those in the financial sector.

Some people really believe this is happening, and are using Cravath’s bonus announcement as Exhibit A. One tipster even asked ATL to “stop reporting bonus information.”

But while we can’t know what kind of paranoia is gripping law firm leaders at the moment, we’re pretty sure that clients don’t actually care about associate bonuses.

Our friends at What About Clients attacked this issue yesterday:

So ATL also asks in the post, what about clients? Should great clients care about associate bonuses this year–this evil and financially difficult one of 2008–more than any other year?

The answer: absolutely not.

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More analysis after the jump.


It makes sense to us that clients don’t really care about associate bonuses this year more than any other year. It’s the entire structure that clients are concerned about, and the incremental differences from year to year are not really the issue.

Clients won’t become concerned, unless:

[C]lients begin to perceive that bonuses paid to associates in 2005, 2006 and 2007, and will be paid again for 2008, reflected something other than actual value-added or superior associate performances. In short, in any year, firms didn’t: (a) pay great associates great bonuses commensurate with the firm’s overall performance, (b) pay marginal or bad associates little or nothing (or get them to leave), and (c) reward everyone else accordingly as they stack up on the scale in between “great” and “marginal”.

Any other regime or system–except maybe if you live in Cuba, and really really like living there–sends the wrong message to everyone.

That is fundamentally the same world clients have wanted us to live in all along:

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“Just being-there” bonuses tells the whole world–not just your clients–that your law firm values “talent retention”, crowd control and morale in the associate ranks over common sense economics and the kind of things clients think about: reward, punishment, incentive, efficiency, penny-pinching in good times and bad. Hey, this is still America; you reward performance, you give incentives for doing great work in the future, and you stiff people who didn’t perform (but still hold out that carrot).

We can (and will) argue about whether this “in America you reward knowledge, in Japan we punish ignorance,” worldview can or should be applied to the law firm environment. Clients always seem to forget that most young, talented lawyers would gladly do something else with their time if it paid more and had better job security.

But in the meantime, we think people can stop blaming “the media” for pushing down associate bonuses via exposing them to hawkish clients:

Clients getting ragged off at associate bonuses in view of the rotten economy? Nah, we don’t see it. In fact just the opposite: in good times and bad, you pay extra to your good people as a reward to them and incentive to others.

I guess that’s the new “Skadden Model.”

In any year, just firms–not sophisticated clients–should care about associate bonuses. [What About Clients?]

Earlier: Associate Bonus Watch: Here Comes Skadden

Associate Bonus Watch: Cravath Offers Less Than Skadden

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