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Law Firm Leader ‘Quite Honestly Surprised’ at Cravath Bonuses

Posted Nov 3, 2009 10:26 AM CST
By Debra Cassens Weiss

Cravath Swaine & Moore’s announcement that it is cutting associate bonuses this year has surprised at least one law firm manager—but not because the amounts are lower.

Cravath was the first major law firm announcing its bonuses, ranging from $7,500 to $30,000 this year. Last year Cravath’s lowest bonus was $17,500, and the year before it was $35,000.

The head of one major New York Law firm who declined to be identified told the New York Law Journal he was "quite honestly surprised that a major New York firm was paying bonuses this year."

The partner said he would expect clients to have a negative reaction to any bonuses being paid in the current economy. He would have expected a bonus decision "would have been deferred for some number of months."

Comments

1.

B. McLeod
Nov 3, 2009 10:57 AM CST

Of course, firm leaders have been discussing this issue both between themselves and with common “consultants.”  Accordingly, this comment is a pretty good indicator that many of the firms indeed will not be paying bonuses.

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2.

associate
Nov 3, 2009 11:15 AM CST

The firms got their numbers down so that everyone was fully productive this year.  So, they have associates bringing in 500-800k each and costing a grand total of less than 200k, probably even including their office space and benefits.

Not paying bonuses is hoarding on the part of the existing partnerships.  If you were counting on loyalty from productive associates and are also counting on paying them 1/5 to 1/4 of the revenue they generated, I’m foreseeing an attrition problem.

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3.

B. McLeod
Nov 3, 2009 11:20 AM CST

(Somebody forgot to tell the above poster that in Big Law, “attrition” is not a “problem”).

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4.

associate
Nov 3, 2009 1:01 PM CST

True enough McLeod.  That is, unless you have a core group that you depend on to get work done.  I’ve seen the turmoil caused when a mid-level associate leaves, and it’s not pretty for those left behind to pick up the slack.  It can pretty well be a crisis within the group trying to get the work done right, on time.

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5.

Bonuses ?
Nov 3, 2009 2:01 PM CST

Bonuses or overtime?

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6.

Um..
Nov 3, 2009 3:12 PM CST

“costing a grand total of less than 200k, probably even including their office space and benefits.”

Yeah, not so much.  Lets say you are talking about a first year - thats 160k + office space + benefits + (1/4)secretrary + (1/50)word processing + (1/75) mailroom + (1/200)receptionist + (1/100)HR + (1/6)paralegal. 

If you think thats less than 40, even for a first year, you’re out of touch with reality.

I think its also quite the leap the say “everyone was fully productive”—that might be true for you, your office, etc, but not across the board.

A fat bonus would be nice though.

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7.

LS
Nov 3, 2009 3:56 PM CST

All obviously and exhaustively debated problems of the legal industry aside, in what other industry would companies dream about intruding upon their suppliers’ business practices to this degree? Clients may have a rightful say in the fees they pay for services, but reaching beyond that stage into the law firm business model seems unjustified.

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8.

associate
Nov 3, 2009 5:10 PM CST

6, I’m sorry my rough math offended you.  I operate in a lower cost environment, and I didn’t say 1st year, I said mid-level.

Let’s say the associate costs 250k total.  That still means making 250-550 per associate.  Deciding that a bonus is “inappropriate” only makes sense if, as McLeod points out, you don’t view midlevel attrition as a problem.

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9.

Leonard
Nov 3, 2009 9:12 PM CST

So, giving bonuses to associates is viewed poorly by clients, but those same clients would prefer to see the partners keep it all? I’m not sure that makes sense.

Agree with LS that, while clients care about paying reasonable rates, they probably don’t care about how law firm finances are structured and in any event should not be dictating the law firm business model.

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10.

B. McLeod
Nov 4, 2009 8:47 AM CST

In large firms, “associates” are fungible and expendable.  Burn out one, plug in the next.  There’s an inexhaustible supply.  Possible quicksand on the tracks?  Send out a couple of “associates.”

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11.

PIN
Nov 4, 2009 11:04 AM CST

Re: #9.  If clients really, actually cared about paying “reasonable rates,” first year associates would be making $50,000 a year, and no client in his/her/its right mind would ever pay $900 per hour (ref: article on transit mediation).

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12.

hadley v. baxendale
Nov 6, 2009 5:46 AM CST

Good move on CSM’s part. The money is already in the door so it doesn’t cost the clients. Better for the partners to push revenues down to avoid criticism and instill some loyalty in those who are left. Tellls the clients that the firm is successful-clients like to see signs of success in their lawyers (including nice but not ostentatious offices).  CSM’s marketing message is “we can make this economy work.”

But, yes, it’s just overtime. We don’t know, however, if these are really “bonuses” in the true sense (merit, dividend) or pay for reaching different levels of billables.

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13.

worst news story ever
Nov 6, 2009 7:25 AM CST

Let me get this straight.  Some of the big news of the week is 4 short paragraphs that some unnamed lawyer at some unnamed law firm thinks associate bonuses are ridiculous.

Pathetic.

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14.

Atty
Nov 6, 2009 9:03 AM CST

Rough estimate for associates, backed up by inquiries of several partners and administrators who know:

benefits + OH=salary

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15.

LawyerMom
Nov 6, 2009 9:20 AM CST

I think it’s great they are paying bonuses?  Why shouldn’t they, if they were lucky enough to make money this year?  So the partners can hoard it all?  I think it’s a nice gesture by them to show the performers who are left that they are appreciated.  As for client reaction, I think it’s good PR as they project health and not desperation like so many of their competitors.  If I were a client, all I’d care about is what I am paying Cravath, not what they pay their associates.

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16.

B. McLeod
Nov 6, 2009 10:07 AM CST

The partners can “show the performers who are left that they are appreciated” by giving them an encore (e.g., “Happy Holidays - you still have a job”).

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17.

LawyerMom
Nov 6, 2009 10:35 AM CST

Bah humbug.  I don’t think they would be paying bonuses and simultaneously shuffling those same folks out the door.  Take it from me—while I am grateful to have a gig in this economy, it is still demoralizing to get no raise and no bonus, and be told the same is likely in store for next year, even when I got the highest performance rating.  Little incentive to perform above average.  Of course one hopes that in the long term the reward will be there, but one never knows.

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18.

B. McLeod
Nov 6, 2009 11:51 AM CST

This is probably the only time I will ever write anything like this on this site.  However, in this economic climate, you should realize that at many firms, the partner earnings will be flat or down from last year.  Since last October, the partners active in management will have been constantly struggling to: 1) avert firm dissolution; 2) pay the bills; 3) keep business coming in the door; and 4) avoid or limit layoffs.  If I may ask those “associates” who still have their jobs, what are you planning on doing for those partners to show them that they are appreciated?

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19.

eichler1
Nov 6, 2009 12:16 PM CST

Ahhh, here’s at least one person who doesn’t buy the media hype that the economy is in “recovery.”

#17: Isn’t it ironic that while you get no raise or bonus, the bailout bankers are getting enormous payouts? I guess it’s “this economy” for most of us, but a bonanza for the Wall Street welfare queens (and kings)! Hmmm, capitalists on welfare: corruption, anyone?

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20.

associate
Nov 6, 2009 1:15 PM CST

McLeod, are you freakin serious????

I’m going to make the partners another 300-400k.  Isn’t that thanks enough?

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21.

Nonequity
Nov 6, 2009 2:54 PM CST

I have to agree with #20.  I get no bonus or pay raise this year and our firm (and I through my collections and hard work) have had one of the best years on record. I will make the equities over $300K this year at a firm in smaller market in what is considered a tertiary market for legal services. I try to be grateful for having a position but when $20K separates me (non-equity partner with 10 years) and a first year associate, hard not to get bitter. Merry Christmas equity partners!

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22.

B. McLeod
Nov 6, 2009 6:53 PM CST

Sorry, ## 20 and 21, but you only “make the partners $300K to 400K” if you covered your own salary and overhead, plus brought in $300K to 400K in business, and did the work.

I will go out on a limb (but not far), and venture that the numbers you are touting are not net of your salary and overhead, and are also not based on business that you brought to the firm.  (If it were otherwise, you’d be running your own shops, keeping the money, and not having to bitch about it).

So you see, ##s 20 and 21, if you did not even exist, the partners would have made that same $300K to 400K (potentially more, if they routed the work to a cheaper attorney).  Indeed, if the managing partner had come down the hall in January, and handed you your walking papers, specifically in order to hire one of our thousands of unemployed colleagues to do the work at a lesser cost, the firm could have made more money.  So, keeping you on staff actually represents lost opportunity cost to the firm.  Personally, I am not sure I would have let such an opportunity pass.  Maybe the equity partners have become accustomed to your faces.

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23.

Vyra Boompf
Nov 7, 2009 6:58 AM CST

Comment removed by moderator.

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24.

associate
Nov 9, 2009 9:21 AM CST

McLeod, now I see why you failed at the business of Big Law and you’re so bitter.  Your genius plan for making more money is to get rid of mid-level associates and hire newbies to do the same volume of work?  What about getting good work product?  What about having the capacity to get all of the work done?

I brought in only a fraction of the work I did, about 10%.  My numbers are net of my overhead (salary, taxes, office space, secretarial pool).
You’re

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25.

B. McLeod
Nov 9, 2009 10:33 AM CST

I’m what?  Much smarter than a poster who admits to being still an “associate”?  I agree.

With the preliminary note that I have not failed at anything, let me move on to correct your misperception about “newbies.”  I am actually suggesting that your partners could easily find hungry, experienced laterals among the unemployed.  Yes, entirely competent (possibly more competent) attorneys who would happily do your job for a fraction of the cost, without bitching about whether or not they receive a bonus.

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26.

Nonequity
Nov 9, 2009 12:34 PM CST

B. McLeod:  Your response is well taken.  I realize that as a non-equity partner, my overhead is higher than that of a new associate (but only $20-25,000 salary wise-secretary/paralegal/office space is the same for me as for a 1st year).  The $300-400K I cited is approximately net of my overhead and costs (so, yes, I bring in about $150K of my own work and the other $350K+ this year was from working on files controlled by more senior partners).  Of course, this year has been my best year for collections and who knows what 2010 brings.

Our firm has lost 6 non-equities recently who followed your thoughts, took clients with them and make the same amount of $ by working 60% of the time. I’m seriously considering the same approach! 

In addition to “liking my face,” I run the commercial practice at our firm and am the only nonequity practice group leader here.  I spend 800 hours a year on administrative tasks in running our practice which includes 25 attorneys.  I don’t think the equities want to do it and they get a bargain with me doing it. No way a “cheaper” associate can do that sort of work for the firm.

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27.

B. McLeod
Nov 9, 2009 12:50 PM CST

Sounds like you well should be considering the same approach.  You might first point out to the equities the narrow spread between your comp and the newbie associates (just in case the problem is inattention, which is not wholly unknown to occur).

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28.

associate
Nov 9, 2009 2:27 PM CST

Nonequity, I agree with McLeod about your situation.  Have you broached the topic with any of your equity partners?  Chances are, they haven’t paid any attention to your particular situation, or they have and they’re just getting over on you since you’re letting them.  All economies are local, and if your numbers work…

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29.

JD/MBA
Nov 9, 2009 5:36 PM CST

#19 & McLeod in 18 - I understand your outrage at the economy “recovery” as you put it.  The fact of the matter is that almost every professional industry IS recovering.  Corporations have been hoarding cash (cash savings are the highest in years) and this will free up debt leveraging which stopped and caused Bear et al to fall.  It’s only a matter of months before Boards will reinvest that cash (read: expand operations/financing/investing) and reinvigorate the recovery.

Addressing the article and remaining posts:
Bonuses are a good thing.  Client corporations never stopped giving bonuses to top performers and they have the organizational prowess to know their value, especially in a down economy and those with jobs are over-worked.
The sad truth is that lawyers make awful businessmen.  After the last recession brought the seniority-partnership law firm model to its knees, the legal industry responded by increasing billable requirements ad naseum.  When the “more is better” model buckled with this last recession, surviving firms haven’t quite thought about improving their own partnership structure.
Efficiency is key. Employee morale is important.


It doesn’t take an MBA to know this. . . unless you’re among JDs.

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30.

B. McLeod
Nov 9, 2009 6:48 PM CST

So, in the Valley of the JDs, the MBA is King?

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31.

JD/MBA
Nov 9, 2009 7:20 PM CST

Yes.

Claim:
JD = book smart and professional competency; MBA = business savvy (obviously the school and student are important factors)

Proof:
JD/MBAs are more efficient than both their JD and MBA counterparts from the beginning: they complete each degree in less time than either does.

Sad Truth:
Many joint degrees leave the legal industry after 3 years because of the high work, low reward structure of most law firms.  They jump ship to the business side, working for/as the client where they have high work, high rewards.

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