It’s always interesting when two respected legal writers approach the same story in different ways. That happened in the coverage of recently announced associate bonuses.
Ashby Jones at the Wall Street Journal penned an article in the November 27 print edition of the paper that ran under this headline:
“Cravath Sends Cheer — Law Firm Lifts Bonuses for Some Associates as Much as 60%”
As always, Jones accurately reports what is true, namely, that Cravath, Swaine & Moore led this year’s associate bonus announcements with an increase over last year’s base bonus levels. Five paragraphs in, he acknowledges that this significant bump still leaves associates well below the 2007 pay scale. The highest associate bonuses this year are $60,000, compared to $110,000 for combined regular and special bonuses in 2007.
Meanwhile, at the New York Times…
On the same day that Ashby Jones’s article ran in the WSJ, Peter Lattman at the New York Times was a bit more circumspect. In that paper’s print edition, the bold line that ran in the middle of the story reads:
“[Cravath’s] year-end awards set the bar for others, and the payouts are up a bit in 2012.”
Like Jones, Lattman observes that base bonus amounts are substantially higher than previously. But he correctly notes 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 report 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. Mystal observes 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 lowballing 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.
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 gives firm leaders a way 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 pre-recession 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.
But here’s a reason to hope. True visionaries seeking long-term institutional stability let such troublemakers walk. They 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 non-financial rewards for all.
And all of this reveals itself in how partners at the top of a firm treat associates at the bottom — a place where too many seem to have forgotten that they themselves once stood.
Interesting. But isn’t Cravath pretty much one of the least internally predatory partnerships among the Big Boys? So, it wouldn’t seem to be the poster child for the need to get away from the evil 21st century model.
As far as partners are concerned, Cravath does many things right, including lockstep equity partner compensation and a relatively narrow top-to-bottom equity partner range. But it’s certainly not a poster child for associate satisfaction. The firm ranked 119 out of 129 firms in the 2012 Am Law Midlevel Associates Survey. I suspect that the culture resulting from a focus on current partner profits may have something to do with that deficiency, but that’s just my opinion.
The Cravath model works for Cravath-like firms (most of the handful of those are boutiques, in my opinion), not for most large national and international firms. Cravath does not try to be all things to all clients.
It was also said “True visionaries seeking long-term institutional stability let such troublemakers walk. They 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 non-financial rewards for all.” Often true. If those big rainmakers had already forced up their own compensation and that of their team, the firm will also find that the remaining partners make more money after the departure. As much money as they were pulling in, they were taking out more. I’ve seen it happen.