A number of firms have adopted a merit-based pay structure, and other firms claim they want to. But few firms have thought through how to make a merit-based structure work as much as Orrick, Herrington & Sutcliffe has. And nobody is addressing the new scheme with quite as much transparency.
Orrick sent around its merit-based bonus memo today. If you have gotten used to firms using merit compensation to hide what they are paying their people, prepare to be surprised:
82% of all US associates received a bonus. As previously communicated, we did not apply an hours threshold in determining bonus eligibility.
The following tables provide information about our US 2009 bonus distribution by new talent model role for all US associates.
That’s right, Orrick actually provided a chart showing the general bonus payouts to its associates. This is not entirely new — Latham comes to mind — but it’s certainly nice. Here are the overall numbers:
Do you want more transparency? Orrick has you covered.
The firm even provided a bonus comparison chart, so its employees know where they stand.
Averages and medians can be misleading. So, Orrick broke down how many people received various levels of bonus payments (click to enlarge):
And, just for good measure, Orrick compared itself to everybody else (again, click to enlarge):
It seems to me that salary transparency is really all that an associate or potential associate can ask for from law firms under a merit-based system. Orrick is stating precisely the percentage of its associates who will receive no bonus, and telling those who did get a bonus how they stack up with others at the firm and against the market in general.
Still, at least one Orrick associate is unimpressed:
It was nice of the firm to include comparison tables but they are not helpful because they combine three classes into one group and then just compare them to the range of salaries and bonuses over three classes at other firms. I understand that Orrick is trying to make the “three rank” thing work for associates, but if I lateral to Mayer or Latham because they pay far more than we do I will be moving over as a “third year” or “fourth year” and not an “associate” or “managing associate.” …
[I]f decent performers just match Cravath by class I guess that’s fair but why go through all of this “talent model” junk to get there?
If you don’t like merit-based compensation, there’s nothing in this bonus memo that is going to change your mind.
But if you compare Orrick to other firms that are going down this killing lockstep path, you have to give the firm credit for giving its associates (and recruits) every opportunity to make an informed decision.
So, on the basis of these numbers, what do you think about Orrick’s system?
Earlier: Orrick’s New Compensation Structure
First!
If I lateral to Latham…
I’d be more interested in knowing why Orrick promoted only 7 associates to partnership this year, compared to 15 last year and 20 the year before, and whether there’s truth to the rumor that all of the former Thelen associates who came in in 2008 have been blacklisted from partnership consideration, notwithstanding the fact that Weitzel promised otherwise when he pitched the idea of moving his group to Orrick.
-Former Thelen associate at Orrick who cares more about partnership prospects than bonus payments.
I wish KaTTTen would pay as well as Orrick.
3 – I don’t think ATL is going to be able to find that out for you…..
3, you’re screwed, start looking to lateral.
3 – be happy that you have a job, i hear reed smith really likes your office space.
I’m not a fan of the three-tier system, but given that Orrick has three tiers, the transparency is great.
Question for the more experienced associates: how does an associate in a lock-step system generally know how well or how badly the firm thinks of him/her? Do yearly reviews/partner feedback generally shed some light on this or does it only ever become clear when an associate is fired/survives layoffs/makes partner/is passed over for partnership?
hey, ATL–it’s time for some compensation threads by city–that we we can compare apples to apples AND oranges, throwing mid-size firms and notable boutiques in the mix. Even if the lateral market isn’t good now, the comparisons will be a good exercise for posterity so that when things turn around, the firms that screwed their associates the most in the downturn regarding compensation can’t hide.
3 – Face it. You you just weren’t good enough. Get over it.
wow! even before the bonus, that’s a lot of money.
aren’t these spoiled brats just happy to have jobs?
3- It is unclear to me whether your practice group has enough work to make the business case for making anyone partner from your group. Things seem to go in fits and starts for you guys, and apparently the bar was set high this year.
By its own admission, almost 20 percent of the associates received no bonus. Therefore, to be truly transparent, the “Bonus Distribution by Role” charts should have included a line for “None.”
Orrick only has 282 associates remaining at the firm?
They had what, twice that last year? Horrific bloodbath.
I’ve never been a fan of so-called “merit” based bonus systems. Like politics, merit has very little to do with it. More often than not, it is either hours-based or a popularity contest – for both you and the partner(s) for whom you work. If you’re well-liked (i.e., charismatic, etc…) and the partners you work for are powerful (i.e. have large books of business or strategic clients of the firm), you can expect a top-end bonus.
19 – that’s u.s. associates only
Who will be next Orrick DC partner to jump ship?
MARKET / ORRICK – Base Salary Comparison
Class: MARKET / ORRICK
2009: $160K / $160K
2008: $170K / $160K
2007: $185K / $170K
2006: $210K / $185K*
2005: $230K / $185K
2004: $250K / $235K**
2003: $265K / $235K
2002: $280K / $235K
*Provided you get promoted from Associate to Managing Associate (many were not this year)
**Provided you get promoted from Managing Associate to Senior Associate (many were not this year)
Make-up bonuses?
-They are awarded at the end of the year. S&P was up 60% over the year and that’s just an index fund.
-No guarantee.
-What if you want to lateral mid-year?
-For younger associates / law student prospects, you think there will be any make-up bonus during the next recession? Stick with lockstep.
12 – not true. It also depends on the cases you are on (dollar value and complexity). If an associate is on a case with only 12 deps vs. the same year associate defending a class action with 400 deps, just because that associate gets to do a few more deps doesn’t mean squat. Also, many times clients don’t care as much who takes the deps as who is defending their employees, often high level employees, so defending deps is higher level work.
19 & 21:
The 282 represents the 82 percent of the US associates who received bonuses. Therefore, there are about 343 associates in the US.
@24 – Good points that luck of the draw can determine some things. And yes, defending deps can be more important (I’ve been doing plaintiff side work (yes, at Biglaw) for a few years now and my bias might be showing). But the luck of the draw where you get more experience can eventually be a self-fullfilling prophecy. I stand by my basic statement that associates can broadly tell how they are regarded by what the partners ask them to do as compared to their peers. That is probably a better indicator than a slap on the back and thumbs up come review time.
@ 20–it’s kind of like life, huh — subjective, judmental, imperfect, subject to capricious fate and luck of the draw. In fact, like democracy, it’s the worst system in the world, except for all of the others.
If you don’t like merit- based systems, you might consider going to be a union teacher, or join SEIU. Perfect for people who just want to hide in the middling crowd and ride the lockstep system escalator as high as it will take them. Those escalators top out pretty low, though.
24: all good points and good reasons that I’d rather be at a lockstep firm than where I am (a newly minted “merit-based” system). But given that my firm has decided to hop on the “merit” train, I hope they at least match Orrick’s transparency (they won’t, but I can hope) – it’s better than black-box “merit.”
I meant 23, not 24.
- 28
3, I mean Jill, get your hot ass back to cranking out secretary’s certs. Thx.
3: I suspect making partner at Thelin was easier than making partner at Orrick. Moreover, I don’t see how an incoming partner from another firm (much less Thelin) could promise you anything about how a new firm would treat you. Having been through that game years ago when I joined a comparable firm (MoFo) as a senior associate, I can tell you that any such promises are empty, even if made with good intentions. I wish you well. But you’ll need to keep working very hard if you want to be made partner. Promises will never get you there. They didn’t work for me at MoFo, and I doubt they’ll work at Orick.
This system is not that “transparent.” It includes no breakdown of what associates got in bonuses by year. That’s understandable given that Orrick is shifting away from a focus on year, but it makes it impossible for associates to compare themselves to peers at other firms.
In particular it makes it impossible to determine whether Orrick is actually paying at least potentially some associates 10-15% above market, as it promised it would in the last memo the firm released. In fact, it seems the opposite is true. You can’t crunch the numbers for managing and senior associates, since there’s no breakdown by year (i.e., you don’t know whether the 60k bonus is going to a 4th year managing associate or a 7th year managing associate), but examining the numbers for regular associates shows there’s no way the firm is paying any of them 10-15% over market, whether defined as freezing firms or non freezing firms.
According to this memo, the maximum that any third year associate at Orrick was paid, including salary plus bonus, was 194,500 (170 base for a third year under the frozen scale, plus 24,500 in the maximum bonus for a regular associate). But at a non-frozen firm, a third year would have made 200,000 (185 base plus 15 in bonus). If Orrick were paying any regular associates 10% above market, it would have had to pay a maximum bonus of 50,000 to bring total compensation for a third year up to 220,000 (i.e., 10% above 200,000).
Assuming that Orrick is defining the market only by firms that froze, which is probably the case, the market rate at other frozen firms for third years is total compensation of 185,000 (170 base plus 15 in bonus). 10% over that would be 203,000, yet the maximum a third year is getting paid according to this memo is 194,500 (which is only 5% above market).
You can’t crunch the numbers for managing associates and senior associates because there’s no breakdown by year, but from what you can tell it seems there’s no way Orrick is keeping its promise to pay at least some associates 10% above market.
These bonus numbers are pretty reasonable if viewed in a vacuum, but the double speak from the firm and the faux transparency is getting old.
It’s pretty funny that in calculating the “median” they excluded everyone who got nothing.
Guess those folks at Orrick became attorneys because they weren’t too good at math.
33 – but it also makes no sense to include those who didn’t qualify for a bonus (e.g., associates who just started). the assumption is that people who got 0 bonus would get 0 bonus under either lock step or merit based. so it seems the more meaningful number is one that only includes those who got a bonus.
i still think that people who are most resistent to a merit based system are those who believe they are at the bottom or will never rise to the top and are content to just get by. and i don’t get why firms should be incentivized to reward or keep them. i would imagine people who excel would welcome the opportunity to stand out and be compensated for their higher level work.
34 – why would you assume that people who got 0 would get 0 under either system? under the old system, if you hit certain hours marks you were required to get a certain bonus. now, you could hit that same mark and get nothing.
the people i know at places doing merit based systems who are pissed are people who are well regarded. their concern is that the firms are promoting a risk-reward situation that is in reality just a risk with no reward – i.e., promising that there will be the possibility of a big number if you’re awesome, but not actually delivering. based on this memo, it seems like that’s in fact the case since it doesn’t look like orrick is paying 10-15% over market as promised. so the firm is basically asking its top people to stick around in the hope that they’ll get compensated for undertaking that risk, but then not delivering. why would someone who thinks their awesome stay at a place where they have only a speculative chance of making what would elsewhere be considered a normal salary? you would need to have a chance of making significant more than the standard to justify the risk.
the people who are at the bottom have reason to worry under either system. people always talk about lockstep like you’re just on an escalator and promoted without reason. but the truth is that shitty people get kicked off that escalator (i.e., fired or forced out) eventually, albeit sometimes it takes awhile.
Keep in mind that Orrick was well above market for the 2008 bonuses, provided you billed at least 2000 hours. And billing 2100 hours got you even more above market. And finally, breaking 2100 and getting great reviews got you even more above market (but very few people got that). Basically billing 2100 in 2008 gave you a big enough bonus to make up for the salary freeze in 2009. Actually, for some levels, billing 2000 also got you on par with associates at places like Cravath.
So high billers beat the market for 2008 or you could look at it as doing fine as compared to non-frozen firms during the course of 2009. Now again it looks like the most highly rewarded associates will beat the market. Not necessarily at every year, but at a bunch of them and certainly a big chunk will beat any market (frozen or non-frozen) at the senior associate level.
at 13,
Yes, yes we are. And the money’s not bad either.
-Spoiled Brat