Cleary Gottlieb Matches Cravath Scale... Or Maybe Beats It?
Is this better than a raise?
Cleary Gottlieb (photo by David Lat)
UPDATE (6/8/16 12:26 p.m.): Some associates have weighed in on the opposite side, wishing Cleary didn’t employ this strategy. See below.
No doubt you expected to see Cleary Gottlieb show up in these pages sooner or later. They certainly weren’t one of those firms who’d try to buck the trend. Cravath set a new normal, Cleary’s there to match it.
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But there is a twist in Cleary’s compensation regime, and it’s one that either shortchanges associates or beats the Cravath standard… depending on your point of view.
First things first, Cleary matched the scale all the way up the line for its New York and D.C. lawyers, as well as those in its International Lawyers Program (for foreign attorneys working a temporary stint in the U.S. offices).
And, yes, the summer associates are getting a commensurate bump as well (just like the summers at Paul Weiss) [UPDATE: A previous version of this story linked at this point to a memo we were sent that was actually informing incoming first years of the increase, not the summers.]
But it’s that sentence about “TOPS” in the memo that’s worth noting:
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The TOPS contribution is not new, but it may be unfamiliar to those outside the Cleary orbit. This is the firm’s contribution to the associate’s 401k account. Rather than giving all that money directly to associates, the firm, as a rule, takes a set percentage of what would otherwise be salary and puts it toward the associate’s retirement. Structured this way, this amount is thus exempt from the statutory cap for personal contributions.
So on the one hand, you could see this as the firm taking cold cash out of associates’ hands in a paternalistic endeavor. On the other hand, by doing this, associates can pump more pre-tax money into their retirement accounts than they’d be able to if they got the money up front. In a sense, Cleary is beating the market with this tax-free compensation… associates just have to wait a lot longer to play with it.
Most Cleary folks see it through the latter lens. We had an outpouring of tipsters on this one, and everyone was universally pleased, at least if the number of exclamation points is any indication.
Congratulations, Cleary team!
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UPDATE (6/8/16 12:26 p.m.): I thought it was strange that so many associate tipsters were all coming down in favor of the TOPS policy even though it takes present value cash out of their pockets. And now we have some dissent rolling in:
Many CGSH associates do NOT agree with the line in your article today about tops. That policy only benefits people who are maxing out their 401ks already, and most associates are not doing so with loans and so forth, but participation is still mandatory. There are several other unusual (some would say questionable) features of this policy as well, but needless to say, most associates would be happier to get their full salary, and make their own decisions about 401k contributions.
It’s an interesting strategy and certainly divisive.
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Joe Patrice is an editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news.
