Today is January 17, so you should have received your first paycheck for 2013 by now. Was that paycheck smaller than you expected?
Well, it wasn’t your imagination. Due to the non-extension of the payroll tax holiday, if you’re earning the same salary this year as last year, your take-home pay should now be smaller.
But what if you’re an associate at a major law firm with a lockstep compensation system? You should see a seniority-based raise reflected in your first paycheck of the year, correct?
Earlier this week, associates at two leading law firms flipped out when their paychecks weren’t what they expected….
Law firm bonus announcements come in two waves. In November and December, the New York-centric firms announce their bonuses (after taking their cue from Cravath). In January and February, the West Coast and also nationally oriented firms announce their bonuses for the prior year.
So the 2012 bonus season isn’t over, even though we’re now two weeks into 2013. Yesterday, for example, brought bonus news from Orrick, Herrington & Sutcliffe.
Orrick is a leader is the brave new world of “merit-based compensation.” What are they up to now?
The most shocking result of the recent survey on partner compensation conducted by Major, Lindsey & Africa was how much better the average partner does in firms with open compensation systems — almost $350,000 better on average, year in and year out. To me, that is the difference between retiring at 55 or 65. A big deal.
Have some fun. Tell your average law student that the average compensation for Biglaw partners at closed compensation shops (irrespective of equity status and seniority) was only $465,000, and see the reaction. Or pop an associate’s bubble. And realize that with demand for Biglaw services trending down, there is only so much time left before partner compensation generally starts to take a hit. I always knew about the disparity between open and closed firms, and I had heard about it anecdotally (I think Lat mentioned in an article a few years ago a personal friend who saw his comp climb dramatically after lateraling away from a closed comp firm). But I never really appreciated the scale until this survey came out.
I would think that anyone (especially younger partners with growing books) who could get out of such a firm would at least be trying to (ergo the need for a growing book). Even if your numbers are stellar, and your book is growing along with your traditional working collections, it is too easy for a closed comp chieftain to declare that you need to repeat the performance to make sure its sustainable. Whereas in a open system, you have leverage right away, and can convincingly argue to the compensation committee that failing to reward you would risk discouraging other potential achievers. And that you will leave — but one needs to be subtle on that front. Threaten to leave a closed comp place, and if they really like you, they’ll offer to match whatever new offer you get (thereby confirming they have been skimping on you all along)….
The recent survey on partner compensation conducted by Major, Lindsey & Africa, which I discussed last week, is full of interesting information. First off, I never really knew how many Biglaw partners there are. The answer? Around 75,000, which includes partners from all firms ranked on the Am Law 200, NLJ 350, or Global 100 in the last five years. Throw in another 1,000 or so partners who were Biglaw partners but left to form high-end boutiques — not included in the survey, but I consider them Biglaw partners since they typically work for similar clients — and you still have a pretty small number relative to the number of lawyers in the world. The figure of 75,000 amounts to less than two years’ worth of new U.S. law school graduates.
Very interesting, especially considering the forty-year-or-so age spread between active partners. Seriously, how realistic is it for any one law graduate (irrespective of pedigree) to think they will beat the odds and eventually make partner? So many things need to go right — it is amazing.
Lat had it right last week. There is a big, and growing, partner compensation spread at nearly all Biglaw shops. And as I mentioned in an earlier column, it is not uncommon to make partner and not see a bump in guaranteed pay at all. Factor in the additional expenses Lat references, such as tax and insurance outlays, and the first few years of partnership can be a net loss for some partners. Even if you finance your buy-in. And especially if you were the beneficiary of some big bonuses, for the suicidal hours you had just put in (big profits for your Biglaw firm!) as a counsel or senior associate in order to get elected.
So please don’t assume that every one of the people you see named as new Biglaw partners (usually in a breathless press release, and sometimes even with an ad in the American Lawyer) are signing contracts for their dream “lawyerly lairs” straightaway. If they are, it’s because they have family money or are a two-professional, no-kid type-family. Otherwise, they are headed for some tight times once they realize that they have to pay federal taxes (including Medicare and Social Security), state taxes (often in every state their firm operates), local taxes (for their beautiful new property), and a real accountant who can figure the whole mess out for them.
Most people don’t realize this, and Biglaw is in no rush to pop the fantasy bubble. Better to have associates motivated by dreams of what Lat referred to as “instant riches.” Better to maintain the prestige of the profession by pretending that making partner at a Biglaw firm is a tremendous achievement, regardless of what firm, practice group, or locale. It’s an achievement, sure. Just like getting elected to some political office. But there is a big difference between getting elected to the U.S. Senate and getting elected as deputy tax commissioner somewhere….
Is being a partner that different from being an associate? Contrary to popular belief, becoming a law firm partner is not a path to instant riches. In the early years, your compensation might not be that much higher than it was when you were an associate or counsel. Your taxes might go up, you might have to pay for your own health insurance and other benefits, and you might have to buy into the partnership. Sure, you might be able to borrow the capital contribution from a bank — but remember, you’re liable on that loan, and the bank might pursue you if it doesn’t get repaid.
Our partner readers sometimes complain about the stereotype that they’re all fat cats. As one of them recently wrote, “[Please don't write] about being admitted to partnership and instantly becoming rich…. At virtually every firm, you become a partner and then start to hope that, over the course of a career, your income will increase to ‘average partner income’ and your hours will decrease to ‘average partner hours.’ Rainmakers reach that goal quickly, but many partners — perhaps a majority in most firms — spend a lifetime waiting for, and never reaching, those goals.”
Of course, that’s the subjective experience of one reader. What does the big picture show? There’s a new report out about partner pay that contains lots of interesting information….
I worked for twenty years at the darkest of the black-box compensation law firms: No one knew what anyone else was being paid, and the firm forbade talking about compensation. Here’s the curious part: We obeyed.
I saw the raised eyebrows of partners considering moving laterally to my firm: “Right — no one talks about compensation. You guys must talk about it all the time, just like we do at my firm. It can’t be a secret.”
Wrong. We really, honest-to-God did not talk about compensation. The subject just didn’t come up.
I’ve heard second-hand that this is true for other black-box firms, too. The managing partner of a different large, black-box comp firm recently told one of my colleagues: “Once you take compensation out of the limelight and forbid people from talking about it, then people stop talking about it. The subject drops off the table.”
That sets the stage: At firms where lawyers are permitted to talk about each other’s compensation, they do. And at firms where lawyers are prohibited from talking about compensation, they don’t.
Riddle me this: In corporate law departments, we are not prohibited from discussing each other’s compensation, but we don’t do it anyway. Why is that?
In terms of firm finances, Paul Hastings had a perfectly decent 2011. Revenue and profits were fairly stable, according to Am Law Daily. Gross revenue fell by 2 percent to $884 million, and profits per partner fell by 1.3 percent to about $1.97 million. On the brighter side, revenue per lawyer surpassed the $1 million mark for the first time, hitting $1.01 million.
So how are those revenue-generating worker bees being compensated? Bonuses are out at Paul Hastings. How are PH associates reacting?
The firm of Orrick, Herrington & Sutcliffe has been a leader in instituting a merit-based compensation system. Two aspects of their system make Orrick’s commitment to merit-based seem genuine:
1. Partners put in significant time so that merit evaluations are more than just hours cut-offs.
2. Orrick is transparent about how many people get paid.
You can’t run a merit-based system with a Jones Day-like approach to transparency without everybody feeling like they are secretly getting screwed. If you do it out in the open, at least the low-hanging fruit will know that other, better work paid off for others in their class.
So let’s look at the memo. While Orrick generally does a good job of looking at associate productivity instead of mere man-hours, make no mistake, the firm still wants you to bill, and in a timely fashion….
Watch to find out what some of our subscribers received in their May box!
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We currently have a number of active openings for associate roles at US and UK firms in HK / China, Singapore and two new in-house openings. As always, please feel free to reach out to us at asia@kinneyrecruiting.com in order to get details of current openings in Asia, as well as to discuss the Asia markets in general and what we expect for openings later this year. Our Evan Jowers and Robert Kinney will be in Beijing the week of March 25 and Evan Jowers will be in Hong Kong the week of April 1, if you would like to meet them in person.
The US associate openings we have in law firms are in the usual areas of M&A, cap markets, FCPA / white collar litigation, finance, and project finance. The most urgent of our top tier (top 15 US or magic circle) law firm openings in Asia (among many other firm openings that we have in Asia) are as follows:
• 2nd to 5th year mandarin fluent M&A associates needed in Beijing and Hong Kong at several firms;
• Korean fluent 2nd to 4th year cap markets associate needed in Hong Kong;
• 2nd to 5th year Japanese fluent M&A associates needed in Tokyo;
• 4th to 6th year mandarin fluent cap markets associate needed in Hong Kong;
• 2nd to 4th year M&A / cap markets mix associate needed in Singapore.
The last time I flapped my wings your way, I tried to make at least enough noise about your mobile phone to make you more than a little bit uncomfortable. I hope I did. If enough of us become anxious enough about the known and unknown unknowns and knowns in our mobile phones, then we can start making wise decisions about how to manage that information and its resultant investigations.
Today, I’d like to put a finer point on the last installment’s topic by asking a question that seemed to catch most attendees off-guard at a conference panel that I moderated last week: is there discoverable personal information in a mobile app? Our panelists’ answer was a uniform “yes” with one stating that, if he had to choose only one type of data that he could discover from a mobile phone, he’d choose app data. Why? Because there’s simply so much of it and because almost all of it is objective – not just user-created like an email – but machine-tracked like GPS, usage duration, log in and log out times, browsed web addresses, browsed actual addresses. Also, most of us seem to have the idea that data doesn’t actually “stick” to our mobile devices the way it “sticks” to our hard drives. Maybe there’s a disconnect based on the fact that our phones are mobile so we assume the data is mobile to?
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