5 Reasons These Biglaw Bonuses Suck
While everyone celebrates their bonus, remember they really suck.
Hey, did you know that bonuses are out?! At least if you work at Cravath and the cadre of hair-trigger matching firms. And while every bonus season brings a sigh of relief that associates are getting anything at all, this year’s announcement — holding serve from last year’s Davis Polk-set schedule — is not really all that great.
Yeah, I know the initial reaction at getting a nice big check is unbridled excitement, but the industry really needs to put these payouts in perspective.
1. Just give them a raise already!
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Despite some false hope in October, we’ve got no reason to believe that the big firms plan on raising associate salaries from the $160K scale set in 2007. Here’s how long ago that was: when Simpson Thacher made the leap to $160K, Barack Obama hadn’t even ANNOUNCED that he would run for president. That’s a long time ago.
As Am Law Daily notes, a $160,000 salary in 2007 can buy you only $139,500 worth of stuff today. Sure, that’s not exactly impoverishing Biglaw attorneys, but when you consider the explosion in law school tuition bills, it paints a daunting financial picture:
In 2007, average annual private law school tuition was $32,367, according to Law School Transparency’s tuition tracker. In 2013, that figure rose to $41,985, and the price at top tier schools is significantly higher. Tuition at Harvard Law School for the 2015–2016 school year is $57,200; at New York University School of Law it’s $57,544.
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Top associates had it much easier 30 years ago, when many current senior partners were entering the work force. Harvard Law School’s annual tuition in the mid-1980s was about $10,000, while a starting salary at Cravath was $53,000, according to Ohio State University Moritz College of Law professor Deborah Merritt.
And, yes, that $53,000 in 1985 was equivalent to only $117K today, but remember that back then “attorneys who clocked 1,600 billable hours a year — about six billable hours a day, five days a week — were considered dedicated performers.” Today, those people are considered fired. The job is much more demanding today, life is much more expensive, law school tuition is much more oppressive — give them a raise.
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2. It’s not really a bonus.
Related to the above point, these bonuses aren’t really “bonuses” as the word is traditionally understood. If you’re one of those lucky senior associates who might earn an extra $10K kicker for billing out of your mind this year — that’s a bonus. This is a discretionary deferred compensation dump.
No matter how exciting a bonus check may be, understand that it’s just a direct deposit pacifier to keep associates from wondering why they aren’t paid more. With a decent bonus, associates get to be reasonably satisfied with their total compensation and firms keep a healthy chunk of compensation discretionary so they can shift to protect their partner profits in case the roof caves in on the economy down the road. But this drift toward more and more discretionary pay is troubling as another step on the path of placing professionals in the increasingly contingent economy. We joke that associates are fungible, but when a greater share of their compensation is made up by an end-of-year bonus, it formalizes the idea that the value of associate work is mutable based on whim and will be paid only after the fact and then only to the associates who stick around until the payday.
In fact, higher bonuses only make this problem worse, because higher bonuses just signal that the firm knows associates are worth more but won’t commit to paying for it as a matter of course.
3. Firms are making a ton this year.
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Meanwhile, the firms weren’t exactly struggling. M&A went bonkers and profits grew at a healthy clip. So why aren’t firms sharing the love? Is it really fair to say that this year was “no better” than last year?
In limited defense of the firms, since those Am Law numbers came out — and just how much can we trust them? — the augers haven’t exactly favored Biglaw.
Revenue is up over last year. That’s good! Almost the entire increase is due to jacking up rates. That’s bad. At least demand is still growing (ever so slightly). That’s good! It’s down from nearly 2 percent last year. That’s bad.
Still, we’re not talking about a lot here. To bump every associate up around $30K would cost, what? $10 million maybe? Divided between 100+ partners, that’s a rounding error. And if cutting back on that partner share means Little Billy doesn’t get to go to Bushwood Academy this year, maybe count yourself lucky that this raise spared the kid a lifetime of being a douche.
4. The “Biglaw Lemming Effect” is just the worst.
Did you know lemmings don’t actually follow each other off cliffs? A 1958 Academy Award winning documentary by Walt Disney titled “White Wilderness” (which sounds like a manifesto) staged scenes of lemmings jumping off cliffs to their deaths and we all just believed it. Because Walt Disney told us to.
Anyway, the phenomenon is quite real for law firms. Cravath waited an inordinately long time to announce bonuses and everyone else just sat and waited. Then, within minutes of Cravath’s announcement, we started getting matches. Nothing says “cartel” like issuing your bonuses minutes after Cravath. I’m sure all these Biglaw lawyers were smart enough to steer clear of actionable collusion, but when the whole labor market waits for one player to act and then copies them, it’s pretty shady.
Moreover, it’s embarrassing. Kathryn Rubino said this the other day, and she’s got a point: “Do you want to hire a lawyer who signals that someone at another firm understands the business better?” Because that’s what blindly following Cravath says. It’s why Davis Polk was so baller last year for surveying the market and declaring, “Screw this.” When your form letter is pre-written and just waiting to cut and paste Cravath’s table, you’re a weenie.
5. They came out way too late.
The plot of yuletide classic Christmas Vacation revolves around Clark laying out a non-refundable deposit on a swimming pool because he expects his bonus — which he depends on as part of his salary — to cover the expense. And then he gets enrolled in a “Jelly of the Month Club.”
All this is to say, why were we still on pins and needles until December 7? People need to make plans with the money they expected to get, and dragging out the process to just give them the EXACT SAME BONUS as last year was bush league. What was the holdup? David Lat mused that it might have been a good sign. Alas, his reasoning was right, but the reality wasn’t as cheery: no one wanted to be “Davis Polked,” but rather than racing to the top, everyone just waited to get permission to stick the associates with the same bonus as last year.
But, seriously, you still have jobs and that’s the important thing. And to the extent we’re going to keep compensating people this way, these are perfectly nice bonuses — way better than people were getting during the Great Recession. Throw that whole check into your student loans and move on.
But understand this isn’t how we should be paying people.
Bonuses and the Reality of Big Law Associate Compensation [The Am Law Daily]
Earlier: Associate Bonus Watch: Cravath Announces Its 2015 Associate Bonuses!
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