Hello associates. It is almost bonus season. For most of you, your main hopes this time of year are (1) to get a bonus and (2) no surprises. What kind of surprises are you looking to avoid? Unwelcome ones. Like your firm going from lockstep associate compensation to a “merit-based” system. Or the firm implementing a different bonus hours target at the last minute. That two-week-long summer trip to Barcelona and Ibiza? The one that cost you about a hundred billable hours? Congratulations. That one hundred hours is now costing you twenty grand in bonus money. Thanks for playing the Biglaw associate game.
So Lat asked me to give some insight into what partners think about associate bonuses. From what I can tell, the overwhelmingly majority of partners don’t think at all about associate bonuses. The reality is that nearly all Biglaw decisions are made by a very small group of partners (increasingly with the help of professional non-lawyer administrators). The ones on the Executive Committee. With an assist (on this issue) by the Associate or Compensation Committees.
Here is how it happens….
Biglaw firms (and their bankers) are excellent at predicting short-term financial performance. So the firm usually has a very good estimate of what profits look like for the year, a few months prior to year-end. Those estimated profits are then allocated, mostly to partner distributions. Eventually someone makes a “recommendation” as to the size of the associate bonus pool, and it gets voted on by the relevant committees. Osmotically, the rest of the partners find out about how associate bonuses were handled this year. Some grumble, but they are the kinds of partners that grumble about what they make, no matter how inflated their own compensation is relative to their contributions. The kinds of partners who grumble about the carpeting, or the friendly demeanor of the security guard in the lobby.
Of course, for most gainfully employed associates in Biglaw, this year should be relatively surprise-free. Biglaw firms seem to be chugging along, and I doubt that any will want to take the prestige hit that comes from publicly shafting their associates. Especially last-minute. So keep billing, hit your targets, and put a little bit extra aside for the IRS in case the Bush tax-cuts expire. Soften the blow for next year in advance. By the way, the reason Biglaw firms have no interest in making “bonus news” is simple and has nothing to do with making associates happy. Firms need to look good to prospective lateral partners with business. No public signs of weakness allowed.
Most partners just want their firm’s reputation in the marketplace to be stable or improving. Because associate bonuses get so much press, and have become a metric for assessing the financial strength of firms, they have a marketing budget component to them. What partners want is good or no press on this issue. Most issues, actually.
Partners also fear associate slowdowns, or associate lateral movement, especially in these leaner days at Biglaw. As a result, most partners want associates to get the smallest bonuses that will still keep them motivated, and not result in bad press for the firm, or associates leaving in droves. Most closed-comp shops follow the same philosophy when it comes to partners, so this should not be a surprise. Rainmakers eventually get scared of having to actually do work, especially the kinds of things that are done on one’s own, in the office — associate stuff.
But despite these fears, Biglaw is due for some changes when it comes to dealing with associate compensation. Ever since I started in Biglaw over a decade ago, there have been pundits calling for a revamp of associate pay. Granted, like most things in Biglaw, the current associate compensation system is inefficient and ripe for improvement. And as a consequence of the Biglaw Breakdown (post-2007) the pundits are already predicting, and we are seeing, some softness in average associate compensation.
It will get worse, for the same reason that partner compensation (for non-rainmakers) is going to get worse. Clients won’t pay. They do not want to pay for junior associate time at all. And they don’t want to pay “partner rates” for senior associates, of counsels, junior partners, and service partners. So everyone in those groups will get paid a little less going forward, except at the elite lockstep shops.
But back to associates and associate bonuses. The glory days of public pronouncements with Drudge-style sirens are coming to an end. Supply and demand. Too much supply of Biglaw associate wannabes and washouts, and not enough demand. The prestige firms will pay their prestige bonuses, and everyone else will be at the mercy of the super-duper billable hour bonus chart calculator gizmo used (to generally dispiriting effect) by most of the Am Law 200 to calculate individualized associate bonuses.
We all know that competition for associate positions is fiercer than ever. But I have not seen any evidence that today’s associates are better than prior generations of associates. No firm is out there broadly proclaiming that “since we cut our incoming class from 50 to 15, everyone we have brought in has been a superstar.” Because it is not true. If anything, the associate recruiting game has become one that is harder to win for firms, as failures are magnified when one of your twelve entry-level junior associate slots is taken up by the HLS grad who is really gunning not for partnership but a WSOP-bracelet. Good luck getting poker boy to cite-check a brief in between his online bouts of hold ‘em on a Cypriot gambling site.
As always, there are good associates and bad associates. Finding and retaining the best ones remains a challenge. Just paying market, and continuing the same recruiting practices as everyone else, does not seem to be leading to improvements in associate quality. Bonuses of the year-end variety are becoming less important as more firms move away from lockstep associate compensation. And now that clients are pushing back on even paying for associate time, it seems like a good time for some alternative models for associate staffing and compensation generally. All the while, hardworking associates wait longer and longer for their bonuses to be announced. Of course, ATL will carry the news as it breaks…
I’ll make some suggestions regarding associate compensation and hiring next week. In the meantime, let me know your thoughts by email or in the comments below. I am already nostalgic for the siren….
Anonymous Partner is a partner at a major law firm. You can reach him by email at email@example.com.