Associate Bonus Watch 2010, Biglaw, Bonuses, Money

Associate Bonus Watch: Orrick's Merit-Based Total Comp Will Use Cravath as a Baseline

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While some firms ran away from their merit-based compensation plans almost as soon as the economy began to turn around, Orrick, Herrington & Sutcliffe stuck with it. Depending on your performance reviews, you might make less at Orrick than your peers at competitive firms, but you also might make a whole lot more. Click here for our prior coverage of Orrick’s compensation system.

Merit-based compensation makes bonus time particularly complicated. The firm uses the bonus to cover up any gaps between your base salary under its multi-tiered associate structure versus base salary at lockstep firms, and it uses its bonuses to pay out, well, associate bonuses. AND it uses the bonuses to pay out that “extra” compensation top performers at the firm deserve.

If Orrick had a culture of secrecy like some of the Biglaw firms we cover (ahem, Jones Day, ahem), then all that would happen would be a general feeling among every associate that somehow they were getting screwed. But Orrick has fought against distrust and misinformation by being amazingly transparent when it comes to its bonus structure. Last February, Orrick put together a wonderful chart that fully explained to its own associates (and potential new recruits and lateral hires) how the firm determined its 2009 bonus structure. We’ve been told that the firm will put one together again for the 2010 bonus cycle. (In February. Which is unfortunately months away.)

So while we wait for the full story, right now we only know what the Orrick associates know. And that is that their bonus will be using the Cravath scale as a benchmark in its calculation of market compensation…

Orrick associates received an email today that announced the general structure of their bonuses. We haven’t seen the full memo, but we understand that the important information here was Orrick’s assessment of the market level for total compensation. Unlike past years, this year Orrick really had some choices. It could have pegged total compensation to an assessment of what Kirkland & Ellis is paying, for instance. But instead the firm went with the scale that mirrors once-proud Cravath, the (former?) standard bearer for associate compensation at large law firms.

In essence that means the total compensation for an average first year at Orrick should be $167,500 — that’s $160K base plus Cravath’s $7,500 bonus. Most Orrick first years should get a bonus that brings them up to that $167,500 level. High performers might get even more.

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How much more? Here’s a statement from the memo:

Our approach allows for high-performing associates to earn even more in total compensation than they could at competitor firms by providing for bonuses that range as high as 5% over total market compensation for Associates, 10% over market for Managing Associates and 15% over market for Senior Associates.

Again, in February we should get an idea as to just how many Orrick associates received these pay bumps for good performance.

Orrick has been determining compensation this way for a while now. As the lateral market improves, we’ll get to the point where associates who don’t like having merit-based compensation find a way to lateral to a firm that does it the old-fashioned way, while Orrick’s associate ranks swell with people who are eager to be paid this way.

Hopefully the pay bargain paid off for a number of Orrick associates. Congratulations. And congratulations to Orrick partners — at least you guys don’t have associates openly talking about their schemes to under-report their billable hours next year in an effort to get back at you for lowball bonuses.

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Earlier: Associate Bonus Watch: Orrick, A Case Study in Merit-Based Bonus Payments

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