Après Recession, Factors Conspire To Create Huge Associate Bonuses. But Are They Necessary?

A recent survey showed that associates don’t stay on at firms that pay them big fat pay checks if they were unhappy to begin with.   Which works out well for the firms that are not playing follow-the-leader by issuing extravagant bonuses.

Contrary to what one might assume would be an expected backlash against increased payouts after the recession, however, most firms—or 50 of them, at any rate—have managed to keep up with the Joneses.

The majority of firms, newly appreciative of the fact that associates are bringing in capital, are doling out the dough.   According to Law.com, firms, having seen how busy associates have become after the 2010 and 2011 financial rebound, are treating their associates with kid gloves.

Those that choose “not to follow the herd”, notes author Amy Kolz, point to the rigid oversight of their clients as the reason. “Clients are watching, and we all have to be careful that we’re operating in a way that gives clients value for what they’re paying,” says top 100 Am Law firm Morgan, Lewis chair Francis Milone.

It all started last January, when Sullivan & Cromwell decided to show their appreciation of their hardworking associates by upping the ante.

“On a Friday afternoon,” we read, “chairman Joseph Shenker announced in a firmwide memo that Sullivan would award class-based spring bonuses, ranging from $2,500 to $20,000, in addition to the firm’s previously announced year-end awards. (Sullivan’s year-end bonuses ranged from $7,500 to $42,500.)”

This, it was explained, was due to the healthily hefty profit showing for 2010.  Profits per partner were up 9 percent, to $3.25 million. Additionally, associate activity had increased significantly.

“It was the fair thing to do,” says Shenker, noting that Sullivan had paid spring bonuses in two prior years, 2008 and 2009. “We weren’t looking to make waves,” he adds.

But guess who ended up making waves, anyway?  Although other firms felt as if they were just starting to come up for air, most felt they couldn’t risk alienating their own associates.  So firm after firm, they followed suit.  Other class-based bonuses were issued.  This, despite the fact that “there was no rational foundation [to the spring bonuses].

“It was not as if suddenly… the…firms…were minting money”, Orrick, Herrington & Sutcliffe chairman and CEO Ralph Baxter was quoted as saying.   The logic behind the bonuses seems to be that firms, which depend on their “human capital”, are aware they are vying for top talent.  Additionally, lateral hiring is on the rise.  And, due to social media, a constant stream of information about associates’ pay is being bandied about.


All of these factors conspired to bring about an across-the-board token of appreciation—no matter how hard it was to justify.  And the irony is that these spring bonuses don’t guarantee profitability—“the financial…profiles of the almost 50 firms that awarded spring bonuses vary widely”—nor do they guarantee that associates will remain with the firm.  “The largest law firms lose 18 percent of their associates each year, according to the NALP Foundation,” we read.

What does make associates want to stay on at a firm?  One unnamed associate at Baker & McKenzie might be speaking for most of his colleagues as well as for himself when he says:

“I’m not thrilled that we didn’t receive a [spring] bonus. But the work I do is phenomenal, and the clients are phenomenal, and if I want to play at this level [of practice], you sometimes have to go along with certain things, whether it be a [slightly] lower compensation level or [if I were somewhere else, perhaps] the requirement to work 2,600 hours,” he says.

The associate says he has no plans to leave Baker.

-EM

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