Akin Gump, Associate Bonus Watch 2010, Biglaw, Bonuses, Money, Tax Law

Associate Bonus Watch: At Akin Gump, Timing is Everything

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It’s been a rough couple of week for Akin Gump. First, Steven Pesner made the firm look bad by exposing his own egomania. The man is now a case study in inappropriate partner behavior, so that should be coming to an Akin recruiting brochure near you.

Then, as we mentioned in Morning Docket, the firm got hit with a racial discrimination lawsuit on Friday. Evidently, racial harmony at Akin “is not so good right now in case you did not know.”

Given all that bad news, let’s focus on something positive (it is the holiday season, after all). Akin Gump has announced associate bonuses, and the firm is matching the Cravath structure, at least in New York. That makes sense: Akin Gump partners are meeting the minimum standard of bonus payout, while Akin Gump associates are putting forth minimal effort towards updating their time entries. What’s fair is fair.

What’s potentially not fair is the timing of the bonus payments. Akin Gump associates will have to wait until 2011 to actually collect their 2010 bonuses….

So far, most (but not all) of the bonuses that have been announced will be paid sometime in December (yay, holiday shopping stimulus). But Akin Gump evidently doesn’t care about stimulating the fourth-quarter economy. Instead the firm will delay bonus payments:

In recognition of your efforts this year, and consistent with our continuing commitment to provide a competitive compensation package for our associates and counsel, the Firm is pleased to announce that associates and counsel in the Class of 2009 and senior that satisfy our eligibility requirements will receive the NY Market Bonus set forth below.

Class of 2009 — $7,500
Class of 2008 — $10,000
Class of 2007 — $15,000
Class of 2006 — $20,000
Class of 2005 — $25,000
Class of 2004 — $30,000
Class of 2003 — $35,000

Bonuses will be pro-rated for associates and counsel who have started during the year, are on a reduced work-load schedule or who have had an approved leave during the past year.

In addition to the NY Market Bonus, consistent with prior years, for those associates and counsel who performed in a truly exceptional manner in terms of both quality and productivity, the Firm may award discretionary merit bonuses. If there are any unique circumstances that should be taken into account in connection with any individual bonus determination, please forward a memo to me as soon as possible detailing such circumstances.

All of the above bonuses will be paid with the February 15, 2011 payroll.

Again, thank you all for all of your efforts. Happy holidays!

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Umm… they mean Happy Holidays 2011, right? Because nobody is going to get any extra holiday cheer from Akin Gump this year.

There are two potential effects of not getting your bonus check until 2011: one that dogs the superstars, and another that is potentially disastrous for everybody.

For associates with options (the superstars), withholding the payment until February 15th means that their peers at other firms will get a 45-day head start on the lateral market (yes, there is a lateral market, I swear). People from the class of 2007 and earlier have no idea what I’m talking about, but older associates know that the first months of the new year is the time to lateral away from your Biglaw firm. Opportunities are there, new year budgets and staffing needs have been set, and if possible you want to get into your next job as soon as you can — to give you a chance of making a full or nearly full bonus at the end of next year. By holding the bonus until February, Akin is keeping its superstars who want out tethered to the firm.

Of course, some firms do this to people every year. But this year the late-paying bonus is particularly interesting because of the potentially significant tax fallout. This Sunday, the New York Times ran a great story about how all the uncertainty surrounding continuation of the Bush tax cuts is making some Wall Street types push bonuses up this year. The bankers would rather get their million-dollar bonuses in 2010, a tax year that will reflect the Bush-era rates, as opposed to 2011, a tax year that might not.

Honestly, who knows what Washington will do with these cuts? One party has no spine, the other has no soul, and I’d put even money on the ludicrous “we’ll extend the tax cuts and extend unemployment and offer the Chinese a reach-around when we ask for more money” plan. But there is still a possibility that the Bush cuts will not be reauthorized, putting taxes back around Clintonian levels and knocking people who make $250,000 or more.

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That threshold seems to be very close to the level where a lot of Biglaw associates (and their spouses) are living. A bonus that counts against 2011 might push a number of associates over the top. Now, I’m not sure how much money you are getting if your crappy Biglaw bonus pushes you from $240K AGI to $255K AGI, so I’ll leave it to commenters to tell us how much of a “bonus” Akin Gump associates will actually make, after taxes, if the bonus is what pushes them into a higher tax bracket.But whatever the number is, I bet it can be expressed mathematically with this symbol: “:(“

UPDATE: Thanks, commenters. Here’s a better — and simpler — point: if you’re an Akin Gump associate or counsel who earns enough (individually or with your spouse) to be affected by the Bush tax cuts, you’d rather get your bonus money in 2010, when it will be taxed at the lower rates, as opposed to 2011, when it might not.

I do hope that Akin Gump was at least thinking about the tax implications for its associates before they decided when to pay the associate bonus. Wait, check that, no it’s better if the firm was absolutely clueless about the tax implications. Ignorance > being mean on purpose.

Tax Fear May Move Bonuses Earlier [New York Times]

Earlier: Akin Gump Partner Pens Email Fantasy About Firing Delinquent Time Keepers

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