Lockstep Associate Bonuses Are ‘Absolutely Irrational’

Lawyer Pay

Lockstep Associate Bonuses Are ‘Absolutely Irrational’

Posted Dec 3, 2007, 05:31 am CST
By Debra Cassens Weiss

Lawyers at big law firms have a “herd mentality” when it comes to associate bonuses.

After Cravath, Swaine & Moore announced “special bonuses” of up to $50,000 for associates—in addition to regular bonuses of up to $60,000—other big law firms quickly fell in line.

“Lawyers are smart, but this herd mentality seems absolutely irrational, economically speaking—and not because the compensation is too high,” Andrew Ross Sorkin writes in the New York Times Dealbook.

The writer notes that the copycat compensation is, in a sense, bragging rights—a way that law firms confirm they are at the top of the pecking order. But he concludes that the salary race doesn’t necessarily make good business sense. “Though partners at elite firms routinely pocket millions, law firms have never been run as efficiently as truly great companies,” he says. “After all, they’re run by lawyers.”

But California law firms have not been as quick to announce they are matching those huge bonuses, according to an article today in the Recorder.

Firms in California often announce bonuses later than in New York, and they are often a little smaller. Heller Ehrman managing partner Robert Hubble told the legal publication his firm doesn't pay bonuses until Jan. 31, and individual performance is taken into account.

Law firm consultant William Brennan of Altman Weil thinks the California firms will ultimately announce bonuses that are almost as big as their East Coast counterparts—because bragging rights are important. "I believe the cost of matching bonuses is not as significant as the loss in perception and image," he told the Recorder.

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Posted by TaraLee - 11 months, 3 weeks, 4 days, 23 hours, 18 minutes ago

As a consumer of large law firm services I resent the high wages that they pay the associates thus jacking up my bill for often sub par work. I am then forced to review the bill, refuse to pay for the 20 hours an associate spent on something that should have taken 10, all because they want to pay associates, even those with no experience several hundred of thousands of dollars.

Recently one of my outside counsel left her large law firm to go to a smaller firm with less overhead, specifically to save her clients money. She did not think it made any sense for me to fund her former firm’s Bangalor office for me to receive assistance on my ERISA questions. Maybe one day other large law firm lawyers will see the error of their billing ways. I am more than willing to pay high hourly rates for experienced attorneys who are smart and efficient, but when I am billed for “development time” I refuse to pay.
Posted by YeahRight - 11 months, 3 weeks, 4 days, 23 hours, 5 minutes ago

That sounds great. The problem is that Corporate America has a similar herd mentality of only hiring the “best” firms, which leads to a demand for the highly-leveraged, poor quality work that you are complaining of Associates make a lot, but partners make several times more. To make that system work, the firm needs leverage, which usually means the partner you hire does little of the work he/she is hired to do.
Posted by Oh really? - 11 months, 3 weeks, 4 days, 22 hours, 50 minutes ago

Of course, consumers of big firm legal services typically want to deal only with the most experienced lawyers, whose fees are too low if they are just being cherry picked. The fee scales typically reflect an expectation that there will be leverage, that the partners’ time, for which the fees are lower than they would be if there were no leverage, will be counterbalanced by a spectrum of less experienced and less expensive lawyers.
Posted by GetWhatUPay4 - 11 months, 3 weeks, 4 days, 22 hours, 39 minutes ago

TaraLee - do you know what it takes to be an attorney. Let me assure you 90% of the MBA grads would wilt under the pressure of law school and the bar. That being said, this trial by fire teaches young advocates a new way to think, research, and write. You want a trained accountant auditing your books, you wouldn’t have anyone but a doctor operate on you, you need an attorney to handle legal matters.

The cost of this education often tops $150k. After paying this for at least 3 years of delayed gratification the associates deserve their salary. This is especially true when you think of the the 3+ years of low or no paying internships during school, the lost wages and wage growth over that time, and the inability to pursue other financial and social goals.

Also, your outside counsel may have violated ethical obligations to her prior firm by remaining associated with you.
Posted by Cole - 11 months, 3 weeks, 4 days, 22 hours, 7 minutes ago

In response to TaraLee, high associate wages for subpar work is not the culprit of your outrageous legal bills; it is more likely the ineffectiveness of Big Firm management. Most of the actual legal research and analysis is done by Associates, who often know more about the subject than the Partner, and whose billable is a lot lower. I would investigate poor business management skills on the part of firm Partners before I would blame the inexperience of Associates and their billable rates for your woes.
Posted by Experienced G.C. - 11 months, 3 weeks, 4 days, 22 hours, 6 minutes ago

Excuse me #4, no one “deserves” a salary; they have to work for it. Attorney development is a cost that the firm must anticipate when hiring someone fresh out of law school. It is not something for which I want to be billed. When I receive a bill from outside counsel I routinely reveiw it. With at least two (no longer used firms) I often found duplicative billing for research that was in a prior bill on the same matter and excessive hours for research or drafting routine issues and papers.
Lets be real, with computers a great deal of routine legal paperwork is not redrafted and retyped from scratch; it’s edited, cut and pasted, recycled, whatever phrase you like. So don’t bill me for it like you scratched it out on a clay tablet. And don’t expect me to pay for your associate to learn…as for me, I have no loyalty to any firm as outside counsel for me. My loyalty is to my corp and I will continue to choose counsel based on tweo criteria -cost and quality, not name brand recognition.
Posted by Helloo - 11 months, 3 weeks, 4 days, 22 hours, 4 minutes ago

Of course young lawyers are still learning. Refusing to pay for their time is ridiculous! They do a lot of the grunt work anyways! Doctors have years of residency where they learn while they work too! People have unrealistic expectations of how long it really takes to turn a document - you as a client may think something should take 10 hours because you are a layperson and don’t realize that there was probably some legal nuance that the lawyers had to look into that made the work be 20 hours! Trust me, no lawyer works extra 10 hours to be away from family and friends if they can get it done in 10.
Posted by ironstone - 11 months, 3 weeks, 4 days, 21 hours, 50 minutes ago

Many law students (the majority) do not start with escalated salaries. Most average between 40-50k. These students still have loans to pay back that may be about 150k, even if they go to a state law school.
I know a judge who is still paying student loans back.. He is very bright, and very fair. Rather than take the private route, he decided to work in public service law. I have been before judges who are terrible, but again, there are a bunch who are exceptional.
Posted by tj- MN - 11 months, 3 weeks, 4 days, 21 hours, 48 minutes ago

Let me guess, when TaraLee says she is a “consumer of large law firm services” that really means a low or mid-level manager of a company that occasionaly hires outside counsel for large transactions or the inevitable litigation matter. Ultimately, her boss will continue to hire the same partners at the same firms because they have a relationship that pre-dates her employment. The skill, knowlege and experience necessary to practice law at that level is worth far more than even the highest hourly rate. Thus, having associates to bill hours to those files is necessary to make the model work. Insufferable blowhards who nit pick legal bills should get a life or a new profession. By the way, most cogs in the corporate wheel do not have the intellect or charisma to be an effective lawyer.
Ps- Anyone who “refuses to pay” their legal fees would not be a client of any large firm very long.
Posted by Anon - 11 months, 3 weeks, 4 days, 21 hours, 47 minutes ago

You clients need to get a clue. Associate compensation has not driven up your fees. Just read the other article on here about how partners are tinkering with their firm’s structure and raising rates to keep their profits per partner high or to get it higher when they admit that there will be no additional work next year over this year. It’s absurd to complain about an associate’s $40k bonus when the partner that that associate works for is pulling down $2 million+. In any case, clients need to focus less on fees and more on the case management decisions they make. Pushing low probability motions, refusing to settle and making litigations personal cause more needless work than training young associates.
Posted by NeverFear - 11 months, 3 weeks, 4 days, 21 hours, 37 minutes ago

As several commenters indicate, experienced in-house lawyers know how to gauge the value delivered by their outside counsel. It’s a major par of our job, for pete’s sake!
Like TaraLee, I use a mix of talent, some big firm, some former big firm, some never big firm. It’s all a matter of matching talent to task, and (in the case of the big firms) having a relationship partner who has the desire and the authority to help you do that.
Posted by jennibc - 11 months, 3 weeks, 4 days, 21 hours, 6 minutes ago

Reading several of the comments in response to Taralee’s concerns makes me embarrassed to be a lawyer. The messages, full of condescension and contempt, show how little some attorneys understand the market or customer service. In Seattle, several small law firms have popped up – renegades from top firms started them- with a business plan to reduce overhead and deliver extraordinary customer service. I submit that in 20 years they will be a model for the way law is practiced. Additionally, to whoever wrote “Also, your outside counsel may have violated ethical obligations to her prior firm by remaining associated with you Also, your outside counsel may have violated ethical obligations to her prior firm by remaining associated with you” WHERE ARE YOU PRACTICING???? Have you ever heard of a “book of business” I know of no state that forbids a lawyer to maintain a relationship with his clients when he leaves a firm. In fact, if I remember correctly from PR, the model rules disallow noncompete agreements. Don’t quote me on that though <laugh>
Posted by Anon1 - 11 months, 3 weeks, 4 days, 19 hours, 56 minutes ago

Aside from the absurdity of complaining about associate compensation (read: both partners and the corporate executives who hire them often make far more than associates do),
I’m always stunned by complaints about “inexperienced” associates doing work. First of all, I know a fair share of associates whose work is far better than that of many “partners” at some firms. Moreover, if associates are not used as “leverage” for partners, that would not only be bad business for the law firms, but also for the corporate clients they serve. Who do you think the partners of 5-10 years from now will be? If there are no associates, there will be no law firms or outside counsel to serve corporate clients’ needs once the current partnership retires. And may I remind you that the boomers will be retiring in droves beginning at around 2010. It is a short-sighted and unwise business decision not to allow the new generation of attorneys to attain the experience they need, and to refuse to compensate them for the tremendous personal sacrifices they are expected to make on the path to partnership.
Posted by George Lenard - 11 months, 3 weeks, 4 days, 19 hours, 47 minutes ago

There are some good points above. But don’t cry about the $150,000 cost of law school as a justification for the salaries.

If a firm pays an associate $150,000 plus a $110,000 “bonus” (regular and “special”), that green associate can pay off law school in one year and have $110,000 to live off of, more than many experienced lawyers (and judges) make.

I would view that $150,000 as a long-term investment, payable over many years, in which case the financial “need” it creates is not particularly acute to anyone who knows how to live within their means.
Posted by Sally Mae - 11 months, 3 weeks, 4 days, 19 hours, 45 minutes ago

This is a supply and demand issue. The demand to overpay is clearly there from corporate America. Until they wise up, Big Firms will continue to run inefficiently.

There are thousands of great attorneys at small to mid-size firms that do the same work being done at large firms, often at half or two-thirds the fees. Is junior associate pay egregious—yes, but corporations and in-particular in-house counsel definitely tolerate it. So why not. It’s not stealing if you have permission!
Posted by Frank - 11 months, 3 weeks, 4 days, 18 hours, 40 minutes ago

Hey guys, the Big Firm model is doomed anyway. Better they get it all out of their systems now. The next wave of business and industry/thought leaders will never deal excesses of high profile legal practice. I heard a recent case where a green assoc. made a mil $ mistake and the client paid for it. Is this training? When partners at the same firm made over 1 mil? Forget it. I started a Virtual General Counsel Firm saving clients money with little overhead, and it’s growing every week. True, the present really big players will keep their Skadden’s and Jones Day’s but I’m telling you the times they are a’changing!!! Thank God.
Posted by Another Point Missed by TaraLee - 11 months, 3 weeks, 4 days, 18 hours, 31 minutes ago

Associates have a lower billing rate than partners for a reason, and that reason is the exact one you complain about - they have less experience. You pay for what you get. You pay a lower billing rate for associates because it should take them longer to do the work a partner ought to get done in a shorter amount of time. If you’re bill is inflated, it likely has nothing to do with the quality or pay scale of the associate. It has to do with partner management. If there is double billing, for instance, that is the partner’s fault who reviews the associate’s billed time, and ultimately charges the client.
Posted by Taxpayer - 11 months, 3 weeks, 4 days, 18 hours, 18 minutes ago

Just have to respond to George, who apparently does not pay taxes and does not have loans with compounding interest. My husband has made between $150K and $200K a year since he started at a big firm four years ago (that includes bonuses), but by the time you take taxes out of both the salary and the bonus, make 401K contributions, and pay for health insurance, it comes to far, far less. It literally would have been impossible to pay off our loans within a few years.
Also, our private loans have interest that’s been adding up since law school, so we owed more than the original principal on some of the loans immediately upon graduation.
His salary is fabulous and we’re well aware, and grateful, that we are among the privileged people in this world, but don’t be fooled by the numbers—net pay is a lot less than it may appear, and gross expenses a lot more!
Posted by Jimbo - 11 months, 3 weeks, 4 days, 18 hours, 12 minutes ago

I certainly hope that the times, they are a changing. BigLaw firms are definitely managed inefficiently and the billable hour does put the client and attorney in immediate conflict. Flat fee billing and retainers are hopefully the wave of the future allowing quality legal work and often, the ability to solve a legal problem before it gets to the litigation stage. I do hope the times are changing but hold out little hope that it will happen very soon.
Posted by Going to Biglaw - 11 months, 3 weeks, 4 days, 14 hours, 21 minutes ago

Look, as a soon-to-be top grad from a top school and on my way to a top firm, if clients want the best educated, most intelligent, and most driven lawyers to work for them, they are going to have to pay for it. If a client does not require that level of legal service then they should shop around at second or third tier firms. Law is hard to do well and if you want somebody who is good you are going to have to pony up for it.
Posted by Ryan - 11 months, 3 weeks, 4 days, 11 hours, 34 minutes ago

Three points:
1) I agree with “Taxpayer.“ George must be part of the Tax Protester Movement. Figuring in the $100k I have in grad loans, plus the $25k I have in undergrad loans, the NYC income tax, the NY state income tax, the Fed income tax, $2k+ in monthly rent, $300 ish in monthly public transportation costs, $600 ish in monthly car and insurance payments- I sure as hell can’t pay off my loans in one year. I won’t be able to afford children until I’m 40 (at best). Newsflash- they don’t pay associates with cash-filled envelopes.

2) The comparison to “truly great companies” makes little sense. Law firms do not produce goods, rather they offer a service. That service requires a great deal of education and experience. Unlike big corporations (ex GE, Microsoft, etc) it’s relatively easy for law firm employees to leave and start up competing firms. If 5 or 6 members of a firm get together and decide to split off, they can often start up a successful, albeit small, rival to their former employer. Try doing that as an engineer at GE, or as an assembly line worker at Ford. Even within other segments of the service industry that require comparable levels of education, like the financial sector, it is next to impossible for a few employees to break off and found their own investment corporation. Law firms, unlike the rest of corporate America, bleed employees. Associates leave firms all the time for a wide variety of reasons- including founding their own firms, joining a past client as in-house counsel and going to work for rival firms. Simply put, law firms have a greater feeling of being an association of individuals than most corporations.

3) All lawyers have at least one three –year graduate degree, and a great deal have an additional graduate degree like an MBA (or in certain areas, like patent litigation, other advanced degrees like the PhD). All practicing lawyers have also passed an extremely selective and difficult licensing test. The only other field in which the average level of education and licensing is as high is medicine. In most major corporations the average employee has a bachelor’s degree. In investment firms, many other employees may have two-year MBAs or other tow-year masters degrees. In engineering firms most engineers have a bachelors, with others having masters and PhDs (I once worked at GE, and I can tell you, very few engineers have a masters, let alone a PhD). A licensed lawyer, like a medical doctor, can always put out a shingle and work for himself. The average CEO, even with an ivy-league bachelor’s degree (and maybe an MBA) can only work for corporations. The J.D. is a portable degree- if firms don’t pay they tend to find out exactly how mobile their employees are.
Posted by Houston Lawyer - 11 months, 3 weeks, 1 day, 22 hours, 55 minutes ago

I am so sick and tired of hearing from people how hard law school is and how hard law students worked to get through it, so they deserve big salaries. Give me a break! Law School was easier than high school for me. I graduated at the very top of my class at a “second tier” law school, landed a job at a top tier law firm, making the big associate salary, made partner, then went in house at one of the largest companies in the world. I did it all with no loans (and, no, I am not independently wealthy, nor did my parents pay for law school) - I went to night school and the company I worked for reimbursed my law school tuition. So, if you are really smart, and not just overly impressed with your own intelligence like many of the law students who post on here about how if clients want the “best educated, smartest associates” they need to pay through the nose, you wouldn’t have $150K in loans when you get your big law firm job.

Just had to get that off my chest. Now, more to the point - if law students actually thought more about being professionals and serving people than about how big their bonus is going to be, law firms wouldn’t act like idiots trying to recruit them. Also, I’ve worked with associates from the top law schools who couldn’t write their way out of a paper bag or do legal research and come up with a good legal analysis to save their lives. Associates are not worth even half what they are paid until they have at least 5 years of experience under their belt. Law school barely prepares you to “think like a lawyer,“ let alone actually practice law. As an experienced in-house attorney, what drives me batty is having to pay huge fees for associates who know almost nothing and spend hours and hours researching to get themselves up to speed. That’s why we would rather pay the higher partner rate - there’s a chance the partner might know as much as I do about my area of law, and very occasionally, they might know more. So, get off your high horses, little law students, and try to learn something before you shoot your mouths off about how much money you deserve because you are so smart.

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