Understanding how a merit-based bonus works can seem simple: The more money made for the firm, the more money made from the firm.
But it’s not always that easy. Just ask Leah Guggenheimer, a former associate at a top New York City class action shop. She alleges she was entitled to significantly more than she received after bringing in more than $2 million in fees, and last year she filed suit against her former firm to collect the money she feels she is owed.
The firm disagrees. It argues that because its bonus policy was discretionary and could be changed without notice, Guggenheimer has been paid in full for her work.
Although the case is still pending, it stands, perhaps, as a cautionary tale to all associates who don’t quite understand how their firms reward performance above and beyond their base salary.
Adding to the mystery, firms often make subjective judgments about performance when determining merit-based bonuses and are secretive about their decisions, says Guggenheimer. Such bonuses “can really be a problem,” she says, “because you don’t know what the other associates are getting, so you don’t know if what you’re getting is comparable.”
Merit-based bonuses are not gift bonuses, which are usually discretionary and handed out firmwide, often during the holidays or at the end of a fiscal year. Rather, merit based bonuses are tied to performance. At some firms, this might be a reward for client development, large individual fee receipts or simply long hours. At other firms, additional money helps underscore an emphasis placed on pro bono work, strong relationships with partners or volunteer work with associations that contribute to the legal profession.
At Montgomery, McCracken, Walker & Rhoads (which has offices in Philadelphia; Cherry Hill, N.J.; and Wilmington, Del.) bonuses are based on a point system that integrates a spectrum of tasks, says firm chairman Stephen Madva. Associates get points for assistance in the hiring process, for example, and for pro bono work as well as for receipts. By blending a range of factors, attorneys can gravitate toward their areas of strength without feeling like their bonus will suffer for it. “It’s been amazing how many people reach for those extra points,” Madva says. “It just focuses their attention.”
Raleigh, N.C.-based Ragsdale Liggett uses the term incentive rather than bonus. Managing partner Frank Liggett believes the term better describes the firm’s system of “rewards earned by our people rather than a gift given to them based on some subjective measure.”
Once an associate has individual fee receipts equal to three times his or her base salary, there’s an immediate payment, he says. Associates can either work toward the check or not, and those who prefer to skip the incentive program aren’t penalized.
Reducing It to Writing
Whatever the system, Guggenheimer warns associates to make sure they not only understand their firm’s bonus policy, but also get a copy of it.
“Associates should have written agreements with the firm, and they should be wary if the bonuses are discretionary and there’s only a verbal agreement,” she says.
Associates at Madva’s firm not only get the bonus policy in writing, they also get the formula for the point system that’s used to calculate the reward amount. Liggett’s firm, too, spells it out for associates. They are given written compensation proposals during their annual reviews that set out both base compensation and the specifics of the firm’s incentive program, he says. Each month, associates get information about their productivity so they can chart their progress.
Guggenheimer also advises associates to get something in writing if any changes are made to the existing bonus program—preferably before they take on any additional tasks. “You need to know if the extra effort is worth it,” she says.