One of my favorite law firm names is Freshfields — Freshfields Bruckhaus Deringer, to be precise, but I prefer Freshfields. It makes me think of rolling green hills, crisp laundered linens, or a dairy, producing the creamiest milk in all the land.
As it turns out, Freshfields is a law firm — a top international law firm, a member of the elite Magic Circle. And this Freshfields is rolling out the green, doling out crisp bills, and ladling out the cream — to its associates. As reported earlier today by Am Law Daily, yesterday Freshfields announced spring bonuses, on the top-of-the-market Cravath scale.
These two moves are significant — far more significant than the earlier spring bonus announcements….
Until now, spring bonuses could be dismissed as a phenomenon limited to a small group of super-elite, New York-based, essentially lockstep law firms. Look at Vault’s 15 most prestigious firms, eliminate those not headquartered in New York — as well as Wachtell Lipton, which is sui generis on bonuses [FN1] — and bang, there’s your list of spring bonus payers.
But Freshfields doesn’t belong to that club. First, it’s a London-based firm, as noted by Am Law Daily. Second, it’s a bit further down in the legal profession’s prestige-obsessed pecking order. In the last Vault 100 survey of the nation’s most prestigious firms, Freshfields came in at #38.
Cadwalader is New York-based, unlike Freshfields, but it also breaks the spring-bonus mold. It came in at #44 in the latest Vault survey, about 30 spots lower than the next lowest-ranking New York firm to pay spring bonuses. As Elie previously wrote, “If Cadwalader goes with spring bonuses, it puts a whole host of other firms in play for the big payout.”
Why is that the case? One might wonder why prestige rankings should matter so much. After all, Cadwalader is an incredibly profitable firm, with 2010 profits per partner of $2.39 million — a PPP figure greater than that of many firms higher than Cadwalader on the Vault rankings. Shouldn’t the list of spring bonus payers be driven more by PPP than prestige?
Alas, for better or worse, that’s generally not how the legal profession works. Biglaw is obsessed, perhaps to a fault, with prestige. Prestige plays a major role in the allocation of talent, especially at more-junior levels (e.g., summer associates and junior associates). Compensation plays a part too — people who still have student loans to repay are obsessed with every last bonus dollar, and they don’t want to work for Firm X if they can earn more doing the same work for Firm Y — but prestige is the preeminent concern for many job seekers.
Say you’re the managing partner or hiring partner of a firm that’s pretty far down in the prestige rankings. It probably doesn’t make much sense for you to pay bonuses at or above the levels of a Cravath. First, it would be bad for your firm balance sheet — and your profits per partner probably aren’t at Cravath levels to begin with. Second, if you were to try and pay more than Cravath, Cravath would likely just match you, recruits would use prestige as the tiebreaker, and you’d lose in the talent war anyway. You won’t steal that summer or first-year associate from Cravath — or Sullivan & Cromwell, Skadden, or Davis Polk — so you might as well save your money, right? [FN2]
That’s why the Freshfields and Cadwalader moves are so interesting. These firms don’t have to play with the big boys, but clearly they want to — and they’re willing to pay for the privilege. Paying spring bonuses at Cravath levels might not help them immediately in terms of prestige or recruiting. But if they keep doing it, year after year, people will start to take notice.
If a non-NYC firm like Freshfields is paying spring bonuses, why shouldn’t we see spring / supplemental bonuses from places like Kirkland & Ellis, Gibson Dunn, Latham & Watkins, Sidley Austin, or O’Melveny & Myers?
If a New York firm like Cadwalader is paying spring bonuses, why shouldn’t we see spring / supplemental bonuses from places like White & Case, Shearman & Sterling, Milbank Tweed, Fried Frank, or Willkie Farr?
It has been interesting and fun to follow the spring bonus announcements. Hopefully we haven’t seen the last of them — and, thanks to Cadwalader and Freshfields, there are probably still more to come.
P.S. We have an isolated report of one firm on the S&C spring bonus scale going back and raising to the Cravath scale. We need additional corroboration before we can run it; if you know which firm we’re talking about, please drop us a line.
[FN1] Wachtell bonuses have been out for a while, but I’ve promised not to write about them until I receive the info from a second source. If you know the WLRK bonus info, please email us or text us (646-820-TIPS / 646-820-8477), and then we can get the word out. Thanks.
[FN2] There are exceptions to the general rule that the more prestigious bird gets the worm. For example, a firm with somewhat lower overall prestige might excel in a specific practice area, and recruits who know they want to go into that area might very well choose that firm over a more generally-prestigious firm. Let’s say you want to be a sports lawyer, for example. You’d be better off at Proskauer Rose, which has a renowned sports law practice, than at Cravath.