Earlier this week, associate bonuses were announced at McDermott Will & Emery. We’ve heard about the news from multiple McDermott sources — and, without exception, all expressed happiness with their bonuses.

“McDermott essentially matched market for average billers and beat market for above average billers,” said one source. “They also combined year-end and spring bonuses, and are paying out on March 16.”

Bonuses at McDermott are individualized, so there’s no bonus table to post. As you may recall, last year MWE announced its move to a non-lockstep compensation system with three levels, each with a different base salary: Level 1 at $145,000, Level 2 at $175,000, and Level 3 at $200,000.

At the time the new merit-based system was announced, some worried that it might just be a sneaky way for reducing overall compensation. But based on what we’ve been hearing, McDermott associates under this system are doing as well as or better than their counterparts on the Cravath compensation scale.

Let’s get into some specifics….

“There was no firm-wide memo or table as we are not lockstep,” said an MWE source. “Our individualized memos stated that members of the Associate Compensation Committee would be meeting with all associates in early April to explain explain how the firms bonuses met, and in many cases exceeded, the amounts announced by our peer law firms — presumably this means New York firms, including spring bonuses.”

Given the highly individualized nature of the McDermott system, we can only provide anecdotal evidence. But that evidence all points in the same direction — namely, compensation at or above Cravath. Here are some data points:

  • Source #1: “[F]olks with decent hours and quality ratings were paid above Cravath (including spring bonuses).” This midlevel associate, with solid hours and reviews, received $5,000 more than he or she would have received as an associate at Cravath (base + year-end bonus + spring bonus).
  • Source #2: McDermott “completed their promise to make whole to market.” This source, in one of the firm’s smaller offices, reported that “[i]n my case they paid the difference between MWE base and market base, plus market end-of-year bonus, plus market spring bonus.” This source was quite happy with his or her bonus.
  • Source #3: “Everyone at the firm is pleased with the bonuses,” according to this class of 2008 associate. It appears that total compensation for class of 2008 members ranged from $190,000 to $205,000. (For class of 2008 members at Cravath-scale firms, the comparable figure would be $190,000: $170,000 base + $10,000 year-end bonus + $10,000 spring bonus.)
  • Source #4: “MWE bonuses were announced Wednesday. Numbers were very good…. First-year associates received in the $30K-$45K range (on top of a $145K salary).” This would result in total 2010-related comp of $175,000 to $190,000 for class of 2009 associates. (For class of 2009 members at Cravath-scale firms, the comparable figure would be $175,000: $160,000 base + $7,500 year-end bonus + $7,500 spring bonus.)

The lesson to be taken away from the McDermott bonus announcement: it actually might be possible to create a merit-based compensation system, even one with base salary tiers falling below the comparable market base salaries, that doesn’t suck will make your associates happy. But to avoid the suspicion that your “merit-based” approach is merely a ruse for reducing overall compensation, you should set the floor for total comp at the level of the big New York lockstep firms like Cravath — i.e., the worst-off associates under your system should still make as much as or more than they would have made at a comparable lockstep firm.

Earlier: Prior ATL coverage of associate bonuses


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