From: Peter Devlin
Sent: Thursday, August 09, 2018 12:32 PM
To: Attorneys – ALL
Subject: Associate Compensation
As you know, recently the Cravath firm increased its associate compensation scale, and several other firms have followed by matching that scale. The Management Committee has been conferring regarding whether we should match the new scale, as the firm has done in the past. Ultimately, the Management Committee has decided against changing our current associate compensation scale.
As in 2016, when we increased our scale to match movements in the market, the MC was deliberate in considering its decision. We have actively discussed and debated this issue for several weeks, and during that time we have heard from many of you, across our offices and practice groups, and among the principals and associates in the firm. Our discussion involved the weighing of many factors, and because it touched on important matters of the firm’s culture, identity, and our commitment to a bright future for what we consider to be one of the most special and valuable platforms in the legal world, I’d like to share some of the MC’s thinking and give you some details of our discussions.
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Fish has maintained its associate salary scale at the top of the market for many years, responding to and matching each scale increase. As is the case with all firms, doing so has involved assessing the financial impact, electing to match, and then absorbing the impact. This time around, our annual additional expense to match would be about $2.9 million. For many law firms, this would end the discussion; the additional expense would either not be affordable, or would weaken a firm beyond prudent limits. Neither is the case for Fish. We have never been stronger than we are today, by every measure – we have strong and well managed finances, no long term debt, recent historically robust economic performance, and a very busy and promising 2018 and beyond, with an enviable and enormously valuable brand, clientele, and market position, and the best legal talent in our practice areas. With all of this in mind, the easy thing to do would be to follow the pack and “match.” And we of course understand that the prevailing market dynamic over past decades has been that a firm will announce a new scale, and then other leading firms will follow by matching, thereby establishing a top-of-market scale. This would then leave the matching firms with the task of rationalizing the increased expense into their business, and because that would typically not include becoming less profitable or economically weakened, firms would look to rate increases, increased billable hour expectations/higher bonus thresholds, or other means of recovering expense and preserving profitability.
Throughout that history, and including today, Fish has always been positioned economically to operate this way. We have decided, however, not to take that approach at this time. As the MC discussed this, several important factors emerged to shape and drive our thinking, including these:
Billable hours expectations. Our business is built on a 1900 billable hour expectation for our associates and principals. This is important to us and we don’t want it to change. We build our annual budgets and measure our expectations and success based on this organizing principle of our firm economics. We value the very strong work ethic of our associates and principals, and we celebrate and reward it (see below), but our budgets, compensation and bonus systems, and our culture are based on a true 1900 hour expectation. This translates to many aspects of our firm that we care about. We invest in all of our associates, starting right away; we provide in-person training and build our skills and team-minded culture through retreats, “boot camps,” in-house NITA training, and many other programs. We value our practice of giving associates exciting work with early client contact, something that has been ingrained in our culture for generations, and we want to preserve and perpetuate this in the firm, through efforts like the NextGen initiative, without added pressures. We provide 200 hours credit annually for pro bono work, and we want to support and encourage this activity as an important part of who we are and what we stand for as a firm, again without added pressures. These things take time that is precious to all of us. With a 1900 billable hour expectation, we can do these things while leaving time for a fulfilling life outside of work. We value a collaborative and flexible environment, and when we hear from people outside the firm, as we often do, that our lawyers genuinely enjoy their work and each other, we know that it’s because we have great people in the firm, and because we value outstanding results, hard work, collegiality, and the balance inherent in our culture, all in equal measure. This is what allows us to create opportunities for excellent lawyers to achieve great things.
“One firm” culture. A guiding principle of the firm’s growth from one small office in Boston into a national IP powerhouse with eleven offices from coast to coast and a Munich office (along with our upcoming expansion into China) is that Fish is one firm. This means, among other things, that we have a single associate salary scale across all of our US offices, rather than one that varies by geography or practice group. Continuing to follow the herd by matching scale increases would put a great deal of pressure on our system, to the detriment of this positive and valuable aspect of our culture.
Principalship track. We are not an “up or out” firm. We invest in the careers and development of our associates, and we hire associates we genuinely believe can progress to principalship. This works for us, as evidenced by the quality and retention of our outstanding group of principals. We see a relationship between our investment in our people, our commitment to provide meaningful opportunities early, the culture around our 1900 billable hour expectation, and our intent for our associates to progress to principalship.
Bonus system. We take pride in our associate bonus system and what it means for us competitively in terms of total compensation. Our group leaders, Practice Group Leaders, and Management Committee spend a great deal of time each year ensuring that we reward the hard work and accomplishments of our associates. As we come to the end of each year, it is one of the most important things we do. In 2017, we awarded associate bonuses of more than $6 million. We budget for generous and meaningful bonuses based on merit and hard work, and when the firm enjoys good performance, we add money to the pool, as we have done in recent years. As noted above, the firm is having another very strong year. If this trend continues for the remainder of 2018, we expect to meaningfully increase this year’s bonus pool. We’re confident (and peer data affirms) that our associate bonus system and resultant total associate compensation are competitive with our peers, and we are committed to keeping things that way. Our salary and bonus structure reflect a balance of our commitments to pay our associates competitively and to the values and cultural attributes discussed above.
Our clients. Our clients, their success, and our role in serving them successfully as their partners are the foundation of our business. Many things are changing and evolving in our industry, but there is none more important than the fact that our clients are ever more focused on the value they are receiving from their law firms. With full justification, our clients are demanding higher value and predictability through efficiency, alternative pricing, law firm investment in innovation, accountability through results, collaboration, and use of alternative service providers. Across the whole firm, we are actively engaged in responding to our clients with creativity, service, and innovation.
As the Management Committee carefully considered all of this, we came to the view that the best decision for our firm and its future is to retain our current associate compensation system and salary scale. While we recognize that there will always be competing views on the subject, and while as noted above we are as well positioned now to absorb a matching scale as we have been previously, we believe that now is the time to break with the cycle of the past. We further believe that continuing doing otherwise would, now, or inevitably in the future, adversely impact and put at risk the values and cultural attributes of the firm discussed above. We know that many firms, including firms we respect and consider our peers, have opted to match. They of course have to decide what is best for them. We have decided to do what we believe is best for our firm.
In summary, given what our business is all about, our strong view is that it would be misguided to follow other firms on a salary move, when we know we can serve our clients, and ourselves and our values, better by not doing so.
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Our 1900 hour model, our philosophy of training and investing in all of our people, the balance and flexibility it provides for the development of the best lawyers in our field, our desire for our associates to progress to success as principals, our one-firm culture – all of these foundational attributes of the firm could be casualties of continuing on the path of reflexively following the pack, as could our relationships with valued clients. We believe our bonus system is a more rational and refined way of achieving top of market compensation for top performance (and we remain committed to achieving it), and that it is the right system to support the things that matter to us. We trust that our associates will discern these important ideas and trade-offs.
Peter