March 20, 2012 3:18 PM
Spring Has Officially Sprung. Now, About Those Bonuses…
Posted by Claire Zillman
By this time last year, Am Law 100 and Second Hundred firms were about halfway through what proved to be a spring bonus bonanza. As of March 20, 2011, 21 firms had doled out extra cash payments to their associates ranging from $2,500 to about $20,000. Twenty-six firms would follow suit over the next six weeks.
In 2012, as Above The Law has been quick to note, things are different. Tuesday officially marks the start of spring, and so far not a single Am Law 100 or Second Hundred firm has announced that it will be awarding supplemental bonuses as the flowers begin to bloom this year.
In fact, The Am Law Daily contacted leaders of the 21 firms that had handed out such bonuses by this time last year about whether the extra payments would be coming this year. All 21 either did not reply or declined to comment publicly about their firm’s bonus plans.
Sullivan Cromwell—which kicked off last spring’s bonus wave by announcing on January 21 that it would award class-based extra payments ranging from $2,500 to $20,000—appeared poised for a repeat performance, saying in a December 8, 2011, memo announcing its year-end bonuses that it expected to award spring bonuses again in 2012.
Since then, however, the firm has been silent on the subject of spring bonuses. Chairman Joseph Shenker did not reply to phone calls and e-mails seeking comment on the firm’s spring bonus plans, and a Sullivan Cromwell spokeswoman told The Am Law Daily that the firm would have no comment on the matter.
Four Am Law 100 managing partners whose firms awarded extra payments last spring did agree to address the topic, but only on the condition of anonymity. All four said spring bonuses are unlikely in 2012.
One of the four said he will only consider awarding such bonuses this year if another firm does so first. “We have not had any discussions about the subject,” said a second, adding that he doubts spring bonuses will be paid in 2012. “I’m not sure if firms are going to feel confident enough to pay them out again.”
The two managing partners cited the shaky state of both the legal industry and the economy as a whole as key reasons for their reluctance to award bonuses this spring. The results of a Citi Private Bank Law Firm Group survey conducted at the end of 2011, which predicted that a dropoff in demand for legal services toward the end of last year would be followed by a similar slowdown at the start of 2012, lends credence to their qualms. And while a subsequent Citi survey, released March 14, classified law firm leaders as increasingly confident about their prospects for this year, it nonetheless described the confidence level as modest. According to The American Lawyer‘s own reporting, partners at several top New York firms said a lackluster second half helped explain why their slight gains in revenue and profits failed to match the increases they enjoyed in 2010.
A third Am Law 100 managing partner said a third factor figured into the lack of spring bonuses this year: skepticism about whether doling out the extra payments last year was a good idea: “People realize that no one got an advantage out of the bonuses last year.”
That firm leaders would question the wisdom of bestowing extra cash on associates this spring makes sense, given that several were expressing similar misgivings not long after they doling out the bonuses last year.
“There was no rational foundation to do [the spring bonuses],” Orrick, Herrington Sutcliffe managing partner Ralph Baxter, whose firm gave bonuses last spring, said in The American Lawyer‘s September 2011 feature “A Waste of Money?” “It was not as if the Am Law 100 were minting money.”
True as that might be, associate pay is a well-rehearsed game of follow-the-leader. Once Sullivan Cromwell announced that it would be awarding its associates extra pay on top of the $7,500 to $42,500 in year-end bonuses they received in 2010, other top-tier firms felt compelled to follow suit in order to compete for associate talent that was suddenly in demand. (As the economy began its slow recovery in 2010, associate lateral hiring increased 61 percent, according to The American Lawyer.)
Sullivan Cromwell’s Shenker told The American Lawyer last year that giving the 2011 spring bonuses was “the fair thing to do,” given that both the firm’s gross revenue (8.5 percent) and profits (9 percent) were up in 2010. He noted that Sullivan Cromwell also paid out supplemental bonuses in 2008 and 2009, on the heels of years that saw the firm’s profits rise 8.3 percent and fall 3.8 percent, respectively.
Prior to the recession, spring bonuses had been a trademark of tremendous growth that firms paid a discretionary basis, which made Sullivan Cromwell’s decision to award them while the legal industry was still feeling the effects of the recession unusual. Nevertheless, it set off a chain reaction.
Cravath, Swaine Moore soon announced its own bonus scale, which followed Sullivan’s but gave fourth- through seventh-year associates an extra $2,500 to $7,500. That prompted other large firms to distribute similar payments. By the end of April, 39 Am Law 100 firms, four Second Hundred firms, and the New York offices of four U.K.-based firms had joined the bonus parade.
One Am Law 100 managing partner whose firm awarded spring bonuses last year said he believes that in most cases the payments were simply meant to augment the lower-than-expected 2010 year-end bonuses given by such firms as Cravath ($7,500 to $35,000) and Sullivan, which usually set the associate bonus standard. The bonuses paid by the two firms were easily topped by those handed out in 2010 by such firms as Boies, Schiller Flexner, where the average bonus was $75,000; Irell Manella, which reportedly doubled the Sullivan and Cravath bonus amounts; and Sidley Austin, where some associates received bonuses double the Cravath scale, according to Above The Law.
“[The spring bonus] is a mechinism that firms employ if they undershoot with their first bonuses in the fall” this managing partner said. “If other firms go higher, they’ll come back with sweetener in spring.”
One problem with that theory: Cravath and Sullivan gave out year-end bonuses in 2011 that were nearly identical to those they awarded in 2010—and were again eclipsed by other firms. So where are the spring bonuses that are supposed to make up the difference?
Still, associates shouldn’t lose hope entirely. Spring officially runs through June 19, and as one Am Law 100 managing partner said: “Just because it hasn’t happened yet, doesn’t mean it won’t.”
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