Biglaw Bonus Season: Is It Time To Pay Double Associate Bonuses?

If firms want to start handing out exorbitant bonuses, just let Above the Law know first.

As the leaves begin to turn, we all know that Biglaw bonus season is just around the corner. Sometime in the next 4-6 weeks, we’re going to start hearing about the annual bonus structure that every major firm will blindly copy. After a year of raises and mid-year bonuses, is there room for one more round of good news for associates?

Over at Law.com, Hugh A. Simons isn’t worried about bonuses as much as he’s afraid Biglaw is gearing up for another salary increase in 2019 and thinks it’s time firms transition away from higher base pay toward massive bonuses before the impending Trump recession locks Biglaw into pay structures and revenue targets they simply can’t maintain. He argues for doubling the size of bonuses — perhaps structured to be paid semiannually — to better reward associates. It’s an interesting, meticulously constructed theory, that spurs outside the box thinking in a sector known for lacking creativity. But it’s also a problematic model and one that I can’t envision the most elite firms adopting — which ultimately dooms it out of the gate.

If the past is a guide then once the salary changes by the early movers have stabilized, Big Law will copy the move unvaryingly nationwide. We should head this off for two reasons. First, another salary increase would be damaging to the profession. It fosters heightened discord with clients and strengthens their resolve to continue taking work away from Big Law. It’s not good for firms, partly because they’ll fall back on the instinctive response of raising rates, which is counter to their long-term health; partly because it disinclines firms to invest in innovation and technology. It’s not even good for associates: it raises the expectations of their billed hours which is not conducive to their long-term participation in the profession; through pressuring profitability, it leans against their prospects for achieving partnership.

This glosses over — though Simons gets there eventually — the real problem lampshaded in the first sentence: “Big Law will copy the move unvaryingly nationwide.” Salary increases aren’t bad for firms… they’re bad for Bumblefuck & Dimbleshit LLP’s Omaha office. If we’ve learned anything from the past two rounds of salary increases, it’s that despite initial grumbling, there’s a lot of give in the pricing for elite Biglaw services. The top Biglaw firms raise rates and the clients keep right on paying them. There’s no innovation slow down. Those firms just keep right on trucking like nothing happened. It’s not Cravath’s fault that the Am Law 51-100 feels obligated to follow its lead. Let Cravath keep raising salaries and push the rest of Biglaw to take a long, hard look in the mirror. After all, there’s no good reason for the bimodal salary curve and instead of trying to keep salaries in check to keep more firms in the top tier, it’s time to just force the issue and get some of these hangers-on to realize they occupy a different segment of the market.

The second reason is that a salary increase is an ill-suited response to the problem at hand, namely attrition (particularly at the more senior levels). Increasing bonuses rather than salaries (fixed costs) would be wiser at this point in the economic cycle; a bonus paid out half now and half at mid-year 2019 would directly address the problem we face.

On the one hand, this is unfortunately true. This is the gig economy at work — why pay for long-term employees when you can pay as you go? It’s cheaper in the long-run to reward employees when it’s convenient for management and skimp when it’s not. There’s an argument to be made that allowing associates to gather bonus rosebuds while they may could be their saving grace when a recession hits and firms have the option of slashing bonuses rather than laying people off. But call me skeptical of these sorts of bargains. When an employer says, “give me the option of paying you more (or less) on an arbitrary timetable of my choosing and maybe I won’t fire you,” it’s not a recipe for a fairy tale ending. It may more closely track trends in corporate America, but it’s another brick in the road toward deprofessionalizing the law.

On Monday, June 4, Milbank surprised the world by raising their salary scale to tee off of a starting salary of $190K. Above the Law was ecstatic.

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This is true.

While we’re on the subject of Above the Law, he also mentions us while applauding the lengthy timetable for matching:

Another guideline for the compensation followers is not to feel rushed. One of the positives from the last round of increases, even if not lauded by Above the Law, is that firm responses played out over eight weeks. A message to associates that says the firm is watching the market, and that any move will be back dated, should quell any anxieties.

Trust me, it was lauded. Firms took what should have been a 2-week story and dragged it into 8-week traffic extravaganza. Next time, we sincerely hope it’s a 10-week process.

Milbank had not been thought of as a salary leader; the reason for their moving seemed to be “if we don’t do it, someone else will”. This isn’t a logic; this is a cliché.

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I really don’t think this is the case. My sense is that Milbank’s logic was precisely that they had not been thought of as a salary leader and wanted in on that discussion. Milbank feels it gets short shrift from the firm rankings out there and believed it deserved to be considered an elite firm too and made this move to stake a claim. That’s why they didn’t really care that others would match or even that they’d eventually have to adjust their compensation to match the efforts of Simpson and Cravath to leapfrog them.

Simons is dead-on that Cravath’s adjustment should provide a model for the next round of salary increases. Cravath weighted the increase more toward senior associates — the ones most likely picked off by clients or lateral hiring. The problem is this clashes with his central thesis that firms should transition toward more bonus compensation. It’s the predictability of base pay that allows firms to combat attrition.

A bonus-centric compensation structure undermines the very predictability that keeps people locked into the Biglaw machine. Even announcing two-stage bonuses, with the second tranche paid six months down the road if people stay, can only provide six months of predictability. After that July payday, associates are on the market again — and that’s assuming hiring firms aren’t willing to cover forfeited bonuses, which they increasingly are. Any firm offering higher base pay is going to win that recruiting battle, and as long as, say, White & Case can afford to raise base salary, they’ll do it and scoop up all the people fleeing firms that offer fickle bonuses.

And, yes, money isn’t everything when it comes to choosing a job, but it’s naive to think it’s not the primary factor in Biglaw work. If a lawyer’s ready to save the whales, so be it, but if they’re still planning to hang out in the Biglaw sector, they’re there for the money.

A first observation is that there are many ways to counter associate attrition that don’t involve compensation: the interest level of the work, the training they’re getting, respect for their personal lives, willingness of partners to push back on unreasonable client demands, avoiding re-work and unnecessary fire drills, personal bonds with peers and partners, long-term growth prospects at the firm.

Avoiding unnecessary fire drills? Free unicorn rides would work too.

But seriously, attorneys do care about these factors and when the whole market pays the exact same, these factors matter for a lawyer shopping around. The more firms individualize compensation the more these other concerns fall by the wayside in a mad grab for cash.

At some level, it’s the refuge of firms who fail on these fronts to rely most heavily on compensation as a retention tool. This is risky: compensation begets complaisance; it does not beget loyalty.

Perhaps it does not. However what definitely does not beget loyalty is telling someone that the bulk of their compensation will be decided on a whim post facto.

…salary increases shouldn’t be the same across all offices. But what, you say, of having “one firm” as a firm value? It’s naïve to think of values as absolutes; values inherently conflict. Another value firms would espouse is to treat people fairly. Is it fair to associates in New York that their brethren in Chicago are paid an amount that gives them 20 percent more purchasing power? From an economic perspective, the amount to pay Big Law lawyers in Chicago should key off the compensation they would get at an in-house or ‘small law’ position in Chicago—their true alternatives—not off the compensation of a Big Law lawyer in New York.

No one trolls the idea of paying the same salary in all offices more than me. That said, these smaller market salary bumps are really the flipside of the attrition coin. It’s all about Houston trying to entice the New York Biglaw mid-level who went to high school in Texas. When viewed from that frame, these wacky salaries make at least a little economic sense.

Another aspect of a moving toward greater rationality centers on the tradition of lock step salaries and hours-based bonuses. These systems are embodiments of Taylorism management theories of the 1890s; they don’t belong in people-centered businesses of the 21st century. People don’t progress at a single rate; a single measure of performance belies the multifaceted nature of the role; using hours as this single measure discourages efficiency and delegation. It’s daft: all law firms salute the notion that their people are their most important resource; they then manage their compensation with the techniques of the steam locomotive era. To state the obvious: progression rates should vary by individual; performance assessment should be multi-faceted and vary with the seniority of the role; and individuals should be guided on development through personalized interaction not arithmetic.

Ultimately, the problem with this proposed model is that it makes so much sense on paper but that’s just never going to live up to reality. Firms should be concerned with retention and enjoy latitude to adjust compensation to keep specific attorneys on the payroll when targeted by rival firms. But how a black box compensation model actually works out is a firm systematically undercompensates attorneys or engages in more troubling discriminatory practices — consciously or unconsciously. Perhaps it’s because lawyers are more risk-averse than other professionals, but transparent lockstep compensation is critical to the predictability that staves off attrition.

In short, this is a fine proposal that law firm management will inevitably screw up. A recession is probably coming. Firms probably shouldn’t raise salaries unless they are the barest of COLAs. Everyone should take a hard look at themselves. That’s my advice.

But if firms want to start handing out exorbitant bonuses, just let Above the Law know first.

We Should Double Year-End Associate Bonuses [Law.com]

Earlier: If Biglaw Firms Don’t Think Recruiters Will Go After Them For Not Raising Salaries, They’re Wrong. This Email Proves It.
Here’s Why You Don’t Deserve The Same Raise… In Pictures
The Most Important Chart In The Legal Industry, And It Has Nothing To Do With The Law


HeadshotJoe Patrice is a senior 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.


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