Money

Tom Wallerstein

Success in Biglaw often is measured by the size of an attorney’s “book of business.” Not surprisingly, having a book of business is also the best way to ensure the success of a private practice. The bigger the book, the greater your exit options. So whether your goal is to make partner or to open your own firm, everyone knows that the key is to develop a book of business.

That is easy to say, but virtually impossible to do in a big firm setting. Many big firms handle only matters in which the amount at stake is in the millions of dollars. This means that the prospect of an associate landing such a case is slim; a client would never entrust a multi-million dollar dispute to an un-tested associate. Associates are told to attend networking events, but what is the prospect of meeting someone who just so happens to have a ten million dollar dispute laying around, and who has not yet staffed the matter, and who is willing to entrust the matter to a junior associate he just met?

Once upon a time, mentoring relationships were strong, and firms were loyal to their associates. A loyal associate could hope that the partner for whom he or she worked would encourage clients to develop a relationship with the associate and allow the associate to claim ownership of future engagements from that client. If nothing else, a loyal associate could expect to inherit clients from a retiring partner.

Alas, the traditional method of building a book of business no longer works for most associates. Firms now sometimes go so far as to actively discourage associates from forming too-strong relationships with clients, lest the associate leave and take the client with them. And even if an associate is fortunate enough to get client contact, clients are likely to develop loyalties to the partner on the matter, even if the associate is doing most of the work. Unfortunately, just because you do good work doesn’t mean that over time you will magically develop that elusive book of business.

To make matters worse, it’s often impossible to predict future business, especially for litigators. If a client hires you for a patent dispute and pays you $1 million in fees in 2011 before the case settles, does that mean you have a $1 million book of business, even if you have no reason to expect any business from that client in 2012? How can you guarantee repeat business from any client, especially in litigation? Do you need a three or five year average? Those are long time frames for associates.

With all these challenges, how can an associate ever hope to make the rain they will need if they want to open their own firm?

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This is my least favorite post to write every year. The Debevoise & Plimpton bonuses were just announced. So now it’s time for me to sit back and marvel at how much money I personally left on the table when I decided to quit Debevoise what feels like a lifetime ago.

In fact, the very first time I can remember hearing about the website “Above the Law” was when a person sitting next to me in a cubicle at the New York Press said: “Jesus Elie, your old firm just paid twice as much in bonus than we’ll make this year. It’s all over this Above the Law site.”

Ah, but it’s not like that this year. This year, Debevoise is just matching the S&C bonuses that aren’t overly impressive. Bottom rail on top now, mister….

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The floodgates are open and we are awash in bonus news. Sources are reporting that Simpson Thacher and Cleary Gottlieb are both matching the Sullivan & Cromwell bonus scale.

That means a little extra money for those at the very top of the scale.

But does it mean spring bonuses?

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Read carefully, because Kaye Scholer is hoping you won’t.

Last night, Kaye Scholer announced a match of the Cravath bonus scale from this season. And a match of the Cravath spring bonus from last season. But that has nothing to do with 2012 spring bonuses, which Sullivan & Cromwell alluded to last night. So even as Kaye Scholer associates are being “made whole” from the firm’s cheap stance on the last bonus season, it looks like they’re already starting this bonus season in the hole.

Keeping you updated about the latest bonus shenanigans is what Above the Law is here for….

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Lat here. As Elie just predicted, Sullivan & Cromwell has shown up to Bigfoot the partnership of Cravath — sort of. It has announced a year-end bonus scale that is very similar to, but slightly better than, the Cravath bonus scale.

And, more importantly, it has promised spring bonuses. The ATL headquarters is around Soho, but we could hear the gnashing of partners’ teeth in both midtown and downtown Manhattan.

Let’s get into the specifics….

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After yesterday’s excitement over the Boies Schiller bonuses, we’re back to the Cravath scale. Today Weil Gotshal came out with its year-end bonuses. The firm is matching Cravath.

Our sources report the Weil scale starts at $7,500 for full first-year associates — no stub-year bonus for the class of 2011, like at Milbank — and tops out $37,500.

UPDATE (12/15/11): Weil just announced that it will pay $42,500 to its most-senior associates, in accordance with the Sullivan & Cromwell bonus scale. Memo below.

Actually, for Weil associates this “match” could be even worse than last year’s bonuses. That’s because Weil followed through on its promise to phase out extra cash for top performers….

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The Cornwall: home to a Cravath crib.

The venerable firm of Cravath, Swaine & Moore has received a fair amount of criticism for its allegedly subpar bonuses. I’ve previously defended their payouts — in times of economic uncertainty, is paying modest bonuses to avoid later layoffs such a bad idea? — but my view has been poorly received. (For commentary castigating firms for their cheapness, please turn to my colleague, Elie Mystal.)

Partners at Cravath, where profits per partner exceeded $3 million in 2010, are definitely in the top 1 percent. But it seems that even non-partners are doing quite nicely for themselves, despite all the bonus bellyaching.

Check out the million-dollar penthouse — yay real estate porn! — of one of Cravath’s corporate lawyers. And she’s not even a partner….

UPDATE (12/12/11): We’ve gotten our hands on the floorplan, which we’ve added to the slideshow, and we’ve added additional comments about what a “practice area attorney” does at Cravath.

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(A non-partner’s million-dollar penthouse.)

This morning’s news that Boies Schiller is making a mockery of the Cravath bonus scale simply reinforces the prevailing view (pace David Lat) around here that the 2011 Cravath bonus scale is fundamentally unfair.

Agreeing on this point is former Kirkland & Ellis partner Steven Harper (whose apparent pro-associate stance may make him a sort of Biglaw apostate). As Harper points out, “equity partner profit trees have resumed their growth to the sky. As the economy struggled, Cravath’s average partner profits increased to $2.7 million in 2009 and to $3.17 million in 2010 … That’s not ‘treading water.’ It’s returning to 2007 profit levels — the height of ‘amazing’ boom years that most observers had declared gone forever. Watch for 2011 profits to be even higher.”

And yet associate bonuses remain stagnant at 2009 levels. Furthermore, as ATL commenter “The Cravath Cut” is so fond of noting, when viewed as a percentage of profits, bonuses appear especially measly, at least from the associate p.o.v. (The current $7,500 market rate for first-years is just 0.23% of Cravath’s profits per partner. Back in 2007, first-year bonuses equalled 1.36%.) Despite these numbers, if history has taught us anything, it is that you can kill anyone Biglaw’s rank and file will follow Cravath’s lead.

Cravath is among the most profitable firms in the world. We thought it would be interesting to see what the implications of matching Cravath are for those firms with much lower profit margins. Which firms’ partners willingly take the biggest hit by keeping up? Are these firms arguably more “generous”? After the jump, check out those firms that pay the largest percentage of PPP in bonuses.

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Just to be clear, the people who think that Cravath is the “compensation leader” in terms of Biglaw firms are incorrect. Wachtell Lipton, for example, regularly pays more than the people at Worldwide Plaza. Cravath does not set the top of the market in terms of associate bonuses.

The first firm to make Cravath associates feel impoverished this season appears to be Boies Schiller. Yep, the house that David Boies built is once again paying money to its people like bonuses are a reward for hard work.

But some say the payouts don’t appear to be quite as generous as last year. Others disagree. But you really don’t have to try that hard to beat Cravath anymore…

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Professor William Birdthistle

Welcome to Lawyers & Economics, a new video series on financial topics by Professor William Birdthistle of Chicago-Kent College of Law. Professor Birdthistle, who teaches corporate law, has been preparing well-received videos for his students on a variety of subjects related to economics and finance. We’ve previously linked to some of his work, which received positive reader feedback, so we thought we’d give you a bit more.

After the jump, here’s a short primer on the Greek debt crisis, which remains ongoing. Watch it, so you can sound enlightened the next time this topic comes up at a cocktail party.

It features not just Professor Birdthistle but also a television actor you might recognize, who left Hollywood to become a law student….

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