Bonus Time — 2012
The Am Law Daily
It's always interesting when respected legal writers approach the same story in different ways. That happened in the coverage of the associate bonuses announced recently by Cravath, Swaine & Moore.
The Wall Street Journal's Ashby Jones penned an article about the announcement that appeared in the newspaper's November 27 print edition under this headline: "Cravath Sends CheerLaw Firm Lifts Bonuses for Some Associates as Much as 60%"
As always, Jones accurately reported what is true, namely, that Cravath had kicked off bonus season by saying it would give its associates extra payments on a scale above last year's base bonus levels. Five paragraphs into the story, he acknowledged that this significant bump still leaves Cravath's associates well below the firm's 2007 pay scale. The largest associate bonuses this year are $60,000, compared to $110,000 in combined regular and special bonuses the firm gave out in 2007.
Meanwhile, at The New York Times…
Even before Jones's article appeared in the WSJ, Peter Lattman of The New York Times had broken the Cravath bonus news online, albeit in a way that was somewhat more circumspect. When the story appeared in print, the bold line that ran in the middle read: [Cravath's] year-end awards set the bar for others, and the payouts are up a bit in 2012.
Like Jones, Lattman observed that the base bonus amounts for 2012 are substantially higher than they were last year. But he correctly noted that "when spring bonuses are added to the equation, there has been little increase for Cravath's associates over the last two years. The law firm did not award spring bonuses in 2012, but last year paid its associates a small stipend in addition to a year-end award. When 2011's spring bonuses and year-end bonuses are added together, total bonus compensation actually exceeds this year's level."
Both Jones and Lattman reported that Cravath had $3.1 million in average partner profits for 2011. For perspective, that's slightly above the $3.05 average for 2006, and not all that far from the $3.3 million all-time high in 2007. Needless to say, associate bonuses haven't enjoyed a similar recovery. But depending on what happens in the spring, they still could, which leads to a final point.
The answer is Elie Mystal over at Above the Law, who observed that spring bonuses more properly belong in the analysis of total compensation for the immediately preceding calendar year. That is, a bonus paid in early 2011 is really compensation for 2010.
The analysis is straightforward. Big law firms waiting for more complete information on how the fiscal year will end preserve flexibility by low-balling the November bonus numbers. Evidently, Cravath concluded that its $3.1 million average partner profits for 2011 were inadequate to justify any significant spring bonus for associates in early 2012. Most other firms followed Cravath's "no spring bonus" lead.
The Fate of the "Special" Bonus
The question now is whether spring bonuses are gone forever. After all, they first appeared as "special bonuses"meaning that they came with this implied caveat: Don't build those dollars into next year's expectations. Of course, that message has landed on deaf ears. But it allows firm leaders to convince themselves that it's fair to leave associate compensation far below 2007 levels, even though average partner profits have recovered almost completely to those lofty heights. Indeed, some firms have even bested their prerecession records.
In all of this, two things are working against associates who dream of a return to the good old days of 2007. First, the glut of attorneys grows as the demand for new associates shrinks. Second, most law firm leaders are dealing with a revolution of rising expectations among senior equity partners. The potential loss of a rainmaker strikes fear in the hearts of many firm leaders (although probably less so at Cravath than at most other places).
But here's a reason to hope. True visionaries seeking long-term institutional stability let such troublemakers walk. The best leaders promote cultural values that transcend the impact on the current year's income statement. They let resulting gains in client service and attorney morale produce ample financial and nonfinancial rewards for all. And all of this reveals itself in how partners at the top of a firm treat associates at the bottoma place where too many seem to have forgotten that they themselves once stood.
Steven J. Harper is an adjunct professor at Northwestern University and author. He recently retired as a partner at Kirkland & Ellis, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at http://thebellyofthebeast.wordpress.com/. A version of the column above was first published on The Belly of the Beast.