Associate Bonus Watch 2008

Associate Bonus Watch: Wachtell Bonuses Go Below 100 Percent

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It’s getting ugly out there. For the first time since 2005, associate bonuses at Wachtell Lipton have dipped below 100 percent of base salary.

For those of you who aren’t familiar with the subject, here’s how bonuses at WLRK work. First, they’re lockstep, not tied to any billable-hours requirement or performance review. Everyone in the same class receives the same bonus.

Second, Wachtell bonuses are calculated as a percentage of base salary. Sometimes the percentage is the same from class to class; sometimes it’s not. In 2006, for example, there were divergences from year to year. When there are divergences, they generally favor seniority, with more-senior associates receiving bonus percentages that are higher than those given to juniors.

In 2006 and 2007, total bonus compensation at Wachtell (including midyear bonuses in 2006) clocked in at or above 100 percent of base salaries . This year, however, the bonus percentage sank below that threshold. We don’t have the exact number, but we’re hearing around 70 percent of base salary — “good” and “better than expected,” say two sources, but not as good as recent years.

(If this figure isn’t consistent with what you know, please email us. Please mention the class year that is the basis for your information, since sometimes the bonus percentage varies from class to class. Due to that variability, plus the lack of a firm-wide bonus memo, bonuses at Wachtell are less transparent than at other firms.)

Recall also that Wachtell base salaries are on a scale that is slightly above market. First-year associates at WLRK earn a base of $165,000 rather than the usual $160,000 (no Latham shenanigans here). A base salary of $165,000 and a 70 percent bonus would bring total compensation for a (non-stub-year) first-year to just over $280,000.

A Wachtell associate earning under $300,000 is a sad thing. But these are sad times.

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Even the Wachtell holiday party was scaled back. More details, plus predictions about the firm’s future, after the jump.


The Wachtell Lipton holiday party took place on Monday night at The Pierre. The party was supposed to be toned down to reflect the dire times, and it was slightly more sober than in past years. For example, there was no band for dancing, just a piano player.

In other respects, however, the party was business as usual. Guests enjoyed lobster, and oysters, and an open bar with top-shelf liquor. Not bad for a recession.

Some celebration is not completely surprising. On the whole, Wachtell had a very good year.

When profit-per-partner figures for 2008 roll in next year, expect PPP at WLRK to remain high. Thanks to firm co-chair Ed Herlihy, who along with Sullivan & Cromwell’s Rodge Cohen dominates the world of banking M&A, Wachtell received tons of work related to the Wall Street meltdown. From the WSJ’s Deal Journal:

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[Herlihy] has become something of a one-man league table. By Dealogic’s count, he and his team has provided legal advice on more than $73 billion of deals this year, including Bank of America’s $2.5 billion acquisition of Countrywide Financial; J.P. Morgan Chase’s $1 billion acquisition of Bear Stearns; Lone Star’s $1.5 acquisition of CIT Group’s mortgage business; Bank of America’s pending $44.7 billion acquisition of Merrill Lynch and near-acquisition of Lehman Brothers Holdings; Mitsubishi UFJ’s 21% stake in Morgan Stanley as well as Morgan Stanley’s brief talks with Wachovia; and Wells Fargo’s pending $15.1 billion acquisition of Wachovia. And that isn’t even including the U.S. Treasury’s takeover of Fannie Mae and Freddie Mac, which was another of his deals.

But that was then, and this is now. Think of the flurry of bailout- and meltdown-related M&A work as a prisoner’s last meal. Wachtell’s profits are driven by merger work, which is drying up due to credit market conditions. Denizens of 51 West 52nd Street expect 2009 to be ugly.

Based on its 2008 results, Wachtell easily could have paid bonuses equal to base salaries — especially since it’s so small compared to its competitors, with just over 200 lawyers, and has such a low associate-to-partner ratio. In going below the magic number of 100 percent, it’s sending a message to its associates. In the immortal words of Margo Channing (Bette Davis) from All About Eve, “Fasten your seat belts. It’s going to be a bumpy night.”

P.S. Even if 2009 is a bad year for Wachtell, “bad” is a relative term. We were at Wachtell from 2000 to 2003, and even during the 2001 recession, WLRK bonuses were still much higher than those at peer firms. To read more about our experience at the firm, click here.

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