Legal News

Pondering Bonuses: What Will Santa Bring Associates this Year?

By Ashby Jones

Heading into the end of the year, law firm managing partners have an interesting decision to make vis-a-vis associate bonuses. Do they try to match the bonuses given by the leaders — typically such big-name firms as Cravath or Sullivan & Cromwell — and risk angering their clients, many of whom are asking for discounts in these difficult times? Or, with clients in mind, do they reject the traditional bonus game and risk alienating their associates?

It’s a dilemma nicely framed this morning by Tony Lin at the New York Law Journal.

According to Lin, year-end bonuses were not commonly a part of associate compensation until the dot-com boom of the late 1990s, when many young lawyers, especially on the coasts, were swapping law-firm gigs for the mad money and stock options of startups. So firms had to ante up to keep bodies in the building. Lin explains that when the dot-com boom ended in 2001, there was an expectation by some firms that the “boom-year” bonus would also die. But it didn’t, and ever since, the end-of-the-year bonus has been an expected part of associate compensation.

So what happens now, as the financial meltdown has left many firms struggling to tread water? Some seem to think that firms will continue to pretend it’s 2006. “This economy is bad, no question, but it’s not catastrophic for us,” one BigLaw managing partner told the NYLJ. “It’s not a basis to cut associates’ pay, which is what getting rid of the bonus would amount to.”

But Orrick’s Ralph Baxter isn’t so sure. Baxter, whose firm laid off 40 lawyers last week, called the current system “not sustainable.”

“The market was set up assuming that every associate coming out of law school wanted to work 3,000 hours a year so he could make partner and work 3,000 hours a year for the next 20 years,” said Baxter. “Clearly, that’s not reality.”

LBers, anyone out there heard anything?

Full post as published by Law Blog - WSJ.com on November 18, 2008 (boomark / email).