Associate Bonus Watch: Mixed Feelings -- Plus Changes To Base Salaries -- At McDermott Will & Emery

So what adjustments did the firm make to its base salary scale?

Recent bonus announcements, from Covington & Burling and from Mayer Brown, have not been well received. Some have wondered whether firms are saving bad news for late in the bonus season, when fewer people are tuned into the coverage (although it should be noted that some of the recent movers always announce their bonuses around this time, so they can cite tradition rather than a desire to avoid attention).

Today’s bonus news was actually announced a little earlier in the month; it has just taken us a little while to gather sufficient details and tip volume. It comes from McDermott Will & Emery, and it was coupled with some adjustments to MWE’s base salary scale.

A quick refresher on McDermott’s approach to comp. Back in 2010, the firm scrapped lockstep and replaced it with a merit-based “level” system. As one MWE tipster explains, “On average, associates typically spend two to three years at each level. Once an associate has achieved various competency markers, they are promoted to the next level.” The firm pays base salaries based on an associate’s level and supplements them with individualized bonuses. (We’ve posted on the next page the MWE standard bonus memo.)

We’ll start with the bonus news. The last time we covered McDermott bonuses, back in 2013, overall sentiment was quite positive. This time around, reactions are more mixed. On the positive side:

  • “McDermott Will & Emery released bonus memos [on March 10], with payment coming March 20. I’m very pleased…. My hours were a little lower than I had wanted this year, but my bonus actually put me above market. Could not be happier. I feel that my work was appreciated, and it came with the added bonus that my workload didn’t crush me last year.”
  • “McDermott bonuses were paid a couple weeks ago, and total compensation for most associates was Davis Polk or higher. I was [over 2100 hours], non-New York corporate, [midlevel associate] with high markets, and received market-level total comp.”
  • “Bonuses announced at McDermott Chicago. Very generous. Class of 2011, [getting more than DPW]. Also the firm is giving raises to everyone in July to bring people up to market.”

On the negative side:

  • “Bonus announcements came out at McDermott Will. Apparently many people got tens of thousands below market, including people who had excellent reviews and made hours.”
  • “[B]onuses were largely underwhelming, especially for top performers. Remember firm is not lockstep so bonuses appear larger than they actually are due to a lack of raise each year. The firm also drastically changed its comp structure a week after bonuses were announced. There is a memo on that.”

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And we have that memo. Here’s the core of it (full memo posted on the next page):

The most recent bonus cycle in the United States saw a doubling of bonus amounts for Associates at top firms across the country. Consistent with the Firm’s merit-based compensation philosophy and promise to meet or beat the market, the Firm paid bonuses for 2014 that brought most Associates to total market compensation (base and bonus) and many strong performers total compensation that was above market.

However, the increase in the size of the bonuses changes the mix of fixed and variable compensation for our Associates to a point that the Firm believes it needs to re-balance that mix in favor of base compensation. Changing the salary scale will provide a better balance between the two. Accordingly, on July 1, 2015 the following base salary scale will go into effect. All salary changes in accordance with this new scale will be prospective.

The lockstep pay scale set by Simpson Thacher in January 2007 hasn’t budged in eight years, but it’s interesting to see adjustments to a merit-based scale that seeks to be competitive with the lockstep scheme. Perhaps it could bode well for an increase to the Simpson scale someday (although I wouldn’t hold my breath; lockstep firms are happy with the current system, which doesn’t tie them down to high fixed costs and lets them just pay bigger bonuses in boom years).

We reached out to McDermott for comment on its bonuses and salary adjustments. A firm spokesperson issued this statement:

McDermott’s bonus system is a merit-based system in which we evaluate and make bonus awards on an individual basis. In addition, our focus is not on the bonus, as such, but on an Associate’s total compensation, which for top performers can exceed the total compensation of Associates at the highest-paid lock-step firms. It’s a highly individualized system that rewards excellence and performance.

Our process this year was the same that we’ve used in the past except that we pegged total market compensation (base and bonus) at a higher level because of the higher level of bonuses in the market. Since we are an individualized/merit-based system, there are Associates who were paid above market, some paid at market and some below.

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Fair enough. The pretty balanced split in reactions from the MWE associates that we heard from suggests that the firm did a decent job of mirroring the market (unlike certain other firms with individualized bonuses, where negative reactions far outstripped positive ones). Keeping a reasonable number of associates reasonably happy while not paying lockstep Davis Polk bonuses is no small feat, so kudos to McDermott on achieving it.

(Flip to the next page for the MWE memo about the firm’s new base salary scale.)


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