Many Firms Match Cravath on Bonuses, Others Increase

As expected, many firms have now matched the associate bonus structure laid out by Cravath, with some adding increases for 8th year associates. Firms that have matched include:

– Proskauer Rose
– Skadden Arps Slate Meagher & Flom
– Shearman & Sterling
– Sullivan & Cromwell (additional merit bonuses in Spring 2012, $42,500 for 8+ year associates)
– Davis Polk & Wardwell ($42,500 for 8+ year associates)
– Milbank Tweed Hadley & McCloy
– Kaye Scholer (match for associates with 1950+ hours, $57,500 for associates with 2400+ hours)
– Weil Gotshal & Manges
– Simpson Thacher & Bartlett ($42,500 for 8+ year associates)
– Cleary Gottlieb Steen & Hamilton ($42,500 for 8+ year associates)
– Debevoise & Plimpton ($42,500 for 8+ year associates)
– Clifford Chance ($42,500 for 8+ year associates)
– Akin Gump Strauss Hauer & Feld (additional merit bonuses in Spring 2012)
– Schulte Roth & Zabel (half to be paid in December, other half in Spring 2012)

Firms that went above and beyond with additional increases include:
– Fried Frank Harris Shriver & Jacobson (up to $52,500)
– Kirkland & Ellis (associates with 2,250-2,350 hours received more than twice the Cravath scale)
– Quinn Emanuel Urquhart & Sullivan (up to $62,000)

Firm Leader Survey Shows Trends, Keys to Differentiation

In the midst of the recession, large firms are recognizing an adaptive business model is the key to sustained short term success. In Alan Cohen’s recent Dec. 1 article “Building a Breakout Firm” for The American Lawyer, he breaks down a number of wide-ranging insights and trends found in the Lawyer’s ninth annual survey of AmLaw 200 firm chairs, leaders and managing partners.

The first revelation is that traditionally-strong corporate practices are expected to struggle in 2012, as 29% of firm leaders expect it to be their most challenged practice group. Also, deal flow is expected to remain relatively stagnant, though 98% of firm leaders expect to charge increased billing rates. Leadership also expects changes in terms of partner makeup, compensation and profit. 39% of firms deequitized at least 1 equity partner this year, and 38% expect to deequitize in 2012. Moreover, 71% will ask partners to leave and the vast majority will hire new partners laterally—74% in corporate, 82% in litigation.

Changes in partner compensation and profit also appear imminent. Nearly half (49%) of firms are realigning compensation with a willingness to work on new initiatives, and 58% of firm anticipate growth in per partner profits (up from 41%). Firms are also looking to stay debt-free as much as possible to attract top lateral talent. 46% of firms reported carrying no debt (up from 43%), while 22% of firms reported carrying more than $10 million in debt (down from 28%).

Meanwhile, there is a growing emphasis on client relationships. 53% of firms reported they have formal feedback systems in place; many also noted they are now turning to outside consultants in order to obtain more candid responses. Clients are also receiving increased secondments, up to 78% this year from 70% last year. Changes have also been made to billing, with the rise of alternative fee agreements (AFAs) that allow customization to meet client needs.

First year associate classes are also getting back on track. Only 14% of firms deferred starting dates in 2011, down from 46%. Additionally, 29% anticipate a larger first year associate class (up from 13%). Similarly, the use of contract attorneys is on the rise with 76% of firms using this approach, up from 55%. Contract attorneys are a cheaper, more attractive solution that helps drive efficiency for clients and also provides great experience for young lawyers.

All this is to say, the model for “building a breakout firm” is changing, with firm leadership adapting in order to differentiate. Among many different trends and an ever-changing paradigm for firms, one thing is clear: there is a growing emphasis on client relationships, tailoring services to clients and bringing in established, high-performing lateral talent to spur growth.

Legal Sector Employment on the Rebound

The legal sector has added 100 jobs this month, and 2,100 since July of this year. As noted in a December 2 article by Claire Zillman in The AmLaw Daily, the Bureau of Labor Statistics’ initial November report shows 100 employees have been added, continuing a recent upward trend following October’s increase of 400. While these increases are yet to offset the loss of 1,500 in August and September, with 300 and 1,200 jobs lost respectively, the shift remains encouraging news for lawyers around the country.

In spite of the month to month fluctuation, this news is one of only a few bright spots for the industry based on statistics released by the BLS since this time last year. However, though July did see a major increase of 4,100 jobs, the article notes that overall “the legal sector has suffered a net loss of 1,000 jobs in 2011 and is down 3,100 jobs since November 2010. Thus, the positivity should be measured with a dose of reality that we are still on the rebound.

Regarding national employment, says Zillman: “The nation’s overall unemployment rate, meanwhile, dropped to 8.6 percent last month, its lowest level in two-and-a-half years. The New York Times cited two factors as driving the decline: employers hiring 120,000 people in November and 315,000 abandoning their active job searches.” She goes on to note that the boost in employment comes only four weeks before the expiration of 99-week insurance benefit payments for the unemployed actively seeking work. “The Times reports that millions of people have already exhausted their benefits, and Congress’s failure to renew the extended benefits program will affect as many as 1.2 million in January alone.”

Clearly, employment in the industry and national economy is still in flux, but the recent trends of October/November and dating all the way back to July are positive signs of a much-needed recovery.

With that said, if Cravath and other Big Law firms are not careful, they may well have an Occupy movement on their hands with many unhappy associates. These young lawyers will soon recognize (if not already) that stagnant bonus compensation in the midst of prerecession-like growth is not fair, even as the national economy continues to recover.

Associate Bonuses Announced by Cravath Swaine & Moore

On the heels of Cravath Swaine & Moore’s memo announcement that associate bonuses for 2011 will closely align with those of 2010, firms in New York and around the world are preparing to follow suit. In recent years, Cravath has become the standard by which most firms dole out year-end bonuses—thus the announcement comes as big news for associates stateside and internationally. According to the memo obtained by The American Lawyer, Cravath associates will receive:

  • $7,500 for 1st Year, Class of 2010
  • $10,000 for 2nd Year, Class of 2009
  • $15,000 for 3rd Year, Class of 2008
  • $20,000 for 4th Year, Class of 2007
  • $25,000 for 5th Year, Class of 2006
  • $30,000 for 6th Year, Class of 2005
  • $37,500 for 7th Year, Class of 2004

A recent Julie Triedman article for The AmLaw Daily notes that for junior level associates, the figures have remained static since being significantly scaled back $17,500 to $7,500 in 2009 during the economic downturn. On the other hand, $37,500 for seventh-year associates is a slight increase from last year’s $35,000, which the AmLaw Journal attributes as “a reflection of the slightly larger bonuses given to seventh-year associates at Paul, Weiss, Rifkind, Wharton & Garrison and Sullivan & Cromwell in 2010.”

According to the memo, “no billable hour or similar criteria” will be used to determine eligibility, although receipt of the “full bonus will be dependent upon “suitable performance at that attorney’s experience level,” however “virtually all of (Cravath’s) associates will receive the full bonus.” Additionally, “bonuses for senior attorneys, specialist attorneys, discovery specialist attorneys and foreign associate attorneys will be determined on an individual basis.”

Eligible associates at Cravath will receive the added compensation on December 9.