Associate Bonus Watch 2010, Biglaw, Bonuses, Money, Musical Chairs, Partner Issues, Texas

Associate Bonus Watch: Vinson & Elkins Gives Me A Headache Takes Spring Bonuses to Texas

The law firm of Vinson & Elkins, one of Texas’s top shops, once represented Enron. I was reminded of this fact in trying to write up V&E’s bonus news (year-end bonuses and spring bonuses, which the firm just announced). Lawyers at Vinson & Elkins seem to thrive on complexity — in the service of hiding what’s really going on with respect to money matters.

Trying to get a grasp on the V&E compensation system gave me a splitting headache. Unfortunately, because the firm plays such an important role in setting compensation for the Texas legal market, attention must be paid.

So let’s discuss the just-announced V&E spring bonuses, as well as the 2010 year-end bonuses that were announced in January 2011, and try to figure out what the heck is going on down there….

Let’s start with the latest news, then work backwards. Earlier this week, Vinson & Elkins announced spring bonuses. The announcement was made by managing partner Joseph Dilg over voicemail, so there’s no memo.

The firm is not following the Cravath spring-bonus scale. Instead, attorneys who received 2010 year-end bonuses will get spring bonuses in the following amounts:

  • Class of 2010: $2,500 (Cravath scale: $2,500)
  • Class of 2009: $5,000 (Cravath scale: $7,500)
  • Class of 2008: $5,000 (Cravath scale: $7,500)
  • Class of 2007 and more senior: 25% of your 2010 year-end bonus

So, for example, an associate who received a $20,000 year-end bonus for 2010 will receive a spring 2011 bonus of an additional $5,000.

One V&E tipster was happy:

V&E jumped on the spring bonus bandwagon, paying out to all offices. Amounts less than Cravath, but hey, no state income tax, plus the 3500 square feet and the Lexus.

Yet again, the market leader in Texas.

But another V&E tipster expressed displeasure:

Of course, this is not market, and it hasn’t done much to raise associate morale. It seems like we’re only “market” when we need to hire lateral talent; otherwise, we’re happy to pay below market, yet take steps to make it appear as if we’re still market. Associates are not happy….

Because the Vinson & Elkins spring bonuses for more-senior classes are tied to the V&E year-end bonuses for 2010, let’s take a look at them. They were announced in late January 2011, and they were roughly on the Cravath scale, with a modest kicker for associates who billed high hours (which “the vast majority of associates” did not, according to a tipster).

Said a second source:

[The 2010 year-end bonuses] were as expected — people were satisfied but not thrilled. Top performers beat the Cravath scale by about $5000, but “average” performers made slightly less.

There were [multiple] levels for each year of seniority — technically not hours-based, but largely went along the 2000/2300 line (2000 = average bonus, 2300 = exceptional bonus).

V&E also has a screwy “deferred comp” system, where they match NY base but only if you hit 2000 hours (and you don’t get the deferred portion until the month you hit 2000 hours; up to $65k is deferred). So the back-ending is heavier than in other markets.

A third tipster claims that (1) the “merit bonuses” awarded by V&E for 2010 were really just hours-based bonuses, and (2) we know roughly what the bonus amounts were at the varying billable-hour and seniority levels. So it’s possible to figure out what these bonuses were.

Below is a table of what one V&E source believes to be the 2011 spring bonuses. For the class of 2007 on up, if you take the amount listed in the corresponding cell in the table and multiply by 4, you end up with the applicable 2010 year-end bonus (because the spring bonuses for these classes were 25 percent of the year-end bonuses). Here is, upon information and belief, the table of spring-bonus amounts:

According to this tipster, Vinson & Elkins is paying total bonus compensation — 2010 year-end bonus plus 2011 spring bonus — that is well below the market level (as set by Cravath).

Consider two examples. Please note that these are just two random examples generated by me. (If you’re at V&E and fit into one of these case studies, I apologize.)

Let’s say you’re a class of 2004 associate at V&E who billed over 2300 hours (the highest level). You’ll get the deferred portion of your base compensation, because you hit 2000 hours, plus you’ll get the following in bonuses:

2010 Year-End “Merit Bonus” + 2011 Spring Bonus = Total Bonus Compensation

$35,000 + $8,750 = $43,750

This is less than what class of 2004 associates at Cravath (and all Cravath followers) received on their lockstep scale, regardless of hours (i.e., no need to hit 2300 hours):

2010 Year-End Bonus + 2011 Spring Bonus = Total Bonus Compensation

$30,000 + $20,000 = $50,000

It’s also less than what class of 2004 associates at Sullivan & Cromwell received:

2010 Year-End Bonus + 2011 Spring Bonus = Total Bonus Compensation

$30,000 + $17,500 = $47,500

Or take another example, a class of 2005 associate who billed 2200 hours. Here’s what this person would earn in bonuses at V&E:

2010 Year-End “Merit Bonus” + 2011 Spring Bonus = Total Bonus Compensation

$20,000 + $5,000 = $25,000

At Cravath, class of 2005 total bonus compensation looks like this:

2010 Year-End Bonus + 2011 Spring Bonus = Total Bonus Compensation

$25,000 + $20,000 = $45,000

And here’s the calculus at S&C (assuming they haven’t matched the Cravath spring bonus scale; as far as we know, they have not):

2010 Year-End Bonus + 2011 Spring Bonus = Total Bonus Compensation

$25,000 + $15,000 = $40,000

That’s a more stark comparison. For this class of 2005 associate billing 2200 hours at Vinson & Elkins, the comparable Cravath and S&C total bonus money — paid to all Cravath and S&C associates, on a lockstep basis — is $15,000 to $20,000 higher.

In defense of Vinson & Elkins, though, remember that Cravath and S&C are New York-centric, while V&E is Texas-centric. Bonus money goes a lot further in Texas than in Manhattan.

(Please note this caveat: due to the complexity of the Vinson & Elkins compensation system, it’s quite possible that we’ve gotten details wrong in the foregoing analysis. If you see errors, please email us, subject line “Vinson and Elkins,” so we can fix them. Thanks.)

In other V&E news, earlier this month Simpson Thacher announced that it would be hiring away Vinson partner Robert Rabalais, to help start up STB’s new Houston office. One source offered this scuttlebutt:

Simpson Thacher poached V&E Houston’s biggest banking/finance rainmaker to start an STB Houston office. They’re paying him $3 million guaranteed per year, which is a significant bump from V&E’s PPP of ~$1.5 million.

[Rabalais has] been threatening to leave forever. He feels like the finance group doesn’t get enough love, because in the firm pecking order the Energy M&A/Capital Markets guys think they’re the bees’ knees and no one else matters. He lost the power/politics struggle with Mark Kelly (relationship partner to dozens of big clients, Houston bar president, and future managing partner).

UPDATE (11 PM): We’re hearing conflicting accounts about internal politics at V&E and Rabalais’s reasons for leaving, so we’ve stricken the second paragraph of the blockquote from the record.

UPDATE (4/21/11): The $3 million figure might be off a bit, but we understand that Rabalais will get a significant raise over what he was earning at V&E. We’ve also confirmed that he has been flirting with firms other than V&E for the last few years — and that he couldn’t turn down the chance to join a firm as elite as Simpson.

Back to our V&E source, who offers this assessment of the hot Houston market:

Between Latham, Cadwalader, and now Simpson, [outside firms] really seem to want a piece of this action lately.

Indeed. As ATL commenters love to point out, a law firm income that would get you a studio apartment and a MetroCard here in NYC can buy you a 3500-square-foot wife house, and a Lexis [sic], down in Houston. What’s not to like?

Simpson Thacher Announces Plans for Houston Office [Am Law Daily]

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