Biglaw, Bonuses, Money

Where Are The Biglaw Bonuses? Associate Bonus Watch, Day 3

The delay bodes well for Biglaw bonuses, and here's why.

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Bonuses. Are. Late.

In a few hours we will be past December 2, when Cravath kicked off the 2013 bonus season. We are well past November 21, when Simpson Thacher launched the 2014 bonus season. We are past the other traditional points on the Biglaw bonus timeline, such as the last Monday in November or the first Monday after Thanksgiving.

What does this delay mean for the size of Biglaw associate (and counsel) bonuses? Some observers are pessimistic. In the words of one commenter, “By now I think the hard reality is setting in. Biglaw bonuses this year are going to be late and paltry. Hope you all didn’t bill too much this year!”

I respectfully dissent. I agree with the 95 percent of ATL readers who believe that bonuses this year will be as big or bigger than last year’s. It’s the wisdom of the crowd: if the thousands of ATL readers who work in Biglaw are expecting big bonuses, presumably because they’ve been working hard and billing harder, that judgment deserves some deference.

And I think the delay actually bodes well for the size of bonuses. Here’s why: nobody wants to get Davis Polked.

Recall what happened last year. Simpson did associates a solid by announcing big bonuses, and by announcing them early, before Thanksgiving. But did Simpson get all the credit it deserved — the credit it received, of course, when its January 2007 salary hike got dubbed the “Simpson Thacher pay raise” as it spread across the country?

No, STB did not get much credit, because its (already generous) bonus scale got topped by Davis Polk. Simpson didn’t get topped by much — DPW’s scale beat STB as to only four class years, and by no more than $10,000 for any class — but in the status-obsessed, hierarchy-driven legal profession, small differences carry big weight. So all the top firms, Simpson included, adopted what came to be known as the “Davis Polk scale.” Davis Polk earned all the glory, getting name-checked in every bonus story on Above the Law.

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Why are bonuses taking so long this year? Because nobody wants to play Simpson in this play, and everyone wants to play Davis Polk (and not just because Davis Polk lawyers are hot).

There are, at most, five firms with any role to play in setting compensation for the top-shelf, New York-focused, lockstep firms — a compensation scale that then becomes the benchmark for Biglaw around the country. I will call these firms the “Fab Five”: Cravath (the usual first mover), Davis (last year’s scale setter), Simpson (last year’s first mover), Skadden (2008’s first mover), and Sullivan & Cromwell (which hasn’t been a player super-recently, but I’m giving them credit for making spring bonuses happen back in 2011). The Fab Five are also, interestingly enough, the most prestigious firms according to the Vault rankings — setting aside Wachtell Lipton, which pays lockstep but ginormous bonuses, and Kirkland & Ellis and Latham & Watkins, which pay great but non-lockstep bonuses (and also didn’t originate in New York like the Fab Five).

The Fab Five find themselves in a Mexican Latino standoff: nobody wants to move first, because whoever moves first will get shot — one-upped by Davis Polk or DPW’s 2015 equivalent. Better to lie in wait and then ambush the first mover instead.

What’s a firm to do? Here are two possibilities:

1. Pay bonuses so astoundingly generous that nobody can top them, or maybe even match them. Have your CFO and her team come up with bonuses that represent the most you can financially provide, your “best and final offer” — i.e., the very best bonuses you can pay without threatening your place in the Am Law 100 profit per partner rankings. That’s admittedly a bit hard to figure out without knowing exactly what kind of year everyone else has been having, but you employ smart people (and have league tables, helpful for figuring out who got the most M&A and other big-ticket corporate work) — figure it out.

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2. Issue strong (but not breathtaking) bonuses, and in the memo include some language along these lines at the end: “The Firm remains committed to compensating its lawyers at the top of the market. The bonus amounts listed above are provisional and subject to revision in light of changing market conditions.”

The first solution is better than the second in that the first might actually win you glory (assuming nobody can match you, or only some can match you). The second is more face-saving and defensive, but at least it shows that you have a clue and that you care. It’s better than saying nothing and letting your associates fret over being second-class citizens of Biglaw when you inevitably get Davis Polked.

What will happen if nobody moves this week? Then it will fall to Cravath, the first among equals, to lead the charge. Even though Cravath broke with tradition somewhat by not announcing on the last Monday in November or the first Monday after Thanksgiving, I’m guessing it will still announce on a Monday afternoon, after its weekly partnership lunch meeting. If nobody else acts, expect Cravath bonuses to drop on the afternoon of Monday, December 7 (which I previously predicted as the latest possible day for bonuses; if bonuses arrive on December 8 or later, then I’m the uncle of a monkey with standing to sue in federal court).

So what happens now? Hurry up and wait. Sign up for the ATL Bonus Alerts. And keep your fingers crossed!

P.S. Note my deliberate exclusion from the Fab Five of such prestigious and profitable firms as Cleary Gottlieb, Debevoise & Plimpton, Paul Weiss, and Weil Gotshal. I’m happy to add one or more of these firms and turn the Fab Five into the “Sexy Six” or the “Sensational Seven,” but membership must be earned. One way to join the club: by taking NY to 190. The firm to do that will secure a well-deserved place in Biglaw history!

Earlier: Where Are The Biglaw Bonuses? And How Big Will They Be This Year?
Where Are The Biglaw Bonuses? Associate Bonus Watch, Day 2

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