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November 21, 2008

In any year, just firms--not sophisticated clients--should care about associate bonuses.

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Permanently Happy Useful Associates are the rarer younger lawyers you paid higher bonuses to who are straight-up kick-ass, energetic and mega-talented wunderkinds you can't practice law without; you want to be partners with them some day. They did better than their peers at work. ("I like the cut of your jib, Sally.")

Three days ago, Above The Law drew more than its usual avalanche of comments on Kashmir Hill's "Associate Bonus Watch Warning: Outlook Bleak", as part of the ongoing never-ending comment-generating "Bonus Fest" slew of posts that's keeping that blog busy. (We don't know how much Kash, Elie and David get paid, but these days, it's not enough.) Anyway, in Tuesday's post:

With the dismal economy and the frequency of law firm layoffs, we speculated last month that regular bonuses may be less than last year, and special bonuses would likely disappear. The New York Law Journal agrees with us, and suggests two other reasons for it:

The scale of the expense and the almost compulsory nature of the market are widely resented by partners. But they also realize bonuses play a huge role in associate morale, recruitment and retention. Most managing partners who spoke to the Law Journal about bonuses cited potential problems with associates in requesting anonymity. But this year they all also mentioned another interest group keeping a watchful eye on bonuses: clients.

The comments to Tuesday's post--mostly from associates at larger firms--are fascinating because at first blush many of them reflect an angry sense of entitlement (yeah, it's overused but useful here) to year-end big money without any, well, basis--i.e., and we paraphrase, "I'm here, Big Papa, so pay me."

[We did like this one: "I deserve to make $200k or more because I'm one of the smartest and hardest-working people in this country." Call us, dude. And this one: "Bonus? You guys are lucky to have jobs." Friend, we'll buy you a drink.]

So ATL also asks in the post, what about clients? Should great clients care about associate bonuses this year--this evil and financially difficult one of 2008--more than any other year?

The answer: absolutely not.

Unless this happens: clients begin to perceive that bonuses paid to associates in 2005, 2006 and 2007, and will be paid again for 2008, reflected something other than actual value-added or superior associate performances. In short, in any year, firms didn't: (a) pay great associates great bonuses commensurate with the firm's overall performance, (b) pay marginal or bad associates little or nothing (or get them to leave), and (c) reward everyone else accordingly as they stack up on the scale in between "great" and "marginal".

Any other regime or system--except maybe if you live in Cuba, and really really like living there--sends the wrong message to everyone.

Back to entitlement theory. No wonder there are almost no attempts at even bad arguments in the comments in support of "why I get my being-there bonus". The "compulsory nature" (NYLJ) of the bonuses make you side with the associates. Why be grateful, or have to make an argument for, something you thought you'd get whether you were any good at your job or not, or whether you were "getting lawyering" quicker than Wendell down the hall, the clueless Law Review editor from Cornell Law with big grades, and absolutely "no engine" for practicing law?

"Just being-there" bonuses tells the whole world--not just your clients--that your law firm values "talent retention", crowd control and morale in the associate ranks over common sense economics and the kind of things clients think about: reward, punishment, incentive, efficiency, penny-pinching in good times and bad. Hey, this is still America; you reward performance, you give incentives for doing great work in the future, and you stiff people who didn't perform (but still hold out that carrot).

And a profit is still a reward for being efficient; you need to protect it, and keep being efficient with it. It's not something you spread around like a demented old sea captain buying everyone hooch at the end of the voyage to celebrate good fortune. You don't dole it out without a metric or a standard in mind. Query: Also, partners, think about the details of your current bonus program. What kind of money managers are your associates going to be as partners, once they are steeped a few years in the program at your firm?

Have law firms been thinking that way in past recent years? Probably not. WAC? thinks that, generally, the best law firms in the world need to re-think how to compensate even some very talented associates, especially those in their first couple of years (they don't know much of anything--and they can rarely do much of anything.)

To sum up: Clients getting ragged off at associate bonuses in view of the rotten economy? Nah, we don't see it. In fact just the opposite: in good times and bad, you pay extra to your good people as a reward to them and incentive to others. But across the board? No, we don't see that either--good year or bad--but we don't suspect that firms will give up the practice of "being there" bonuses any time soon--even after 2008. Yearly bonuses, given no-matter-what, should make anyone sane nuts, crazy, twisted, Flip City, in short order. Give the firms time to get properly and routinely tight with money, which they should have done all along.

If they do not, clients are going to have problems with that--and with "being there" associate pay generally--in good economies and bad ones.

Value, anyone?

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Temporarily Happy "I'm-here-so-pay-me" Associates are younger lawyers who got Being There bonuses; you have no earthly idea why you ever pay them anything. ("Hey, Justin, go away, grow up.")

(Photos: M. Shulman/20th Cent. Fox., M. Judge/El Greco)

Posted by JD Hull at November 21, 2008 01:26 AM

Comments

At most top law firms, nearly all the associates work hard and do good (practically indistinguishable) work. It is more than just "being there." Given that, having lockstep compensation and making dismissal (rather than no bonus) the punishment for sub-par work makes a ton of sense. There is really no way for most law firms to curve compensation in a realistic way. The very energetic and excellent get to stay around longer and get a shot at counsel/partner; the ones who can't hack it get fired. Everyone else (which means 95% of the associates in each class) should be paid the standard compensation package while they remain with the firm. I don't see why partners have a problem with this.

Posted by: DP at November 21, 2008 02:27 PM

"Hey, this is still America; you reward performance, you give incentives for doing great work in the future, and you stiff people who didn't perform (but still hold out that carrot)."

Yeah, unless you're Congress.

Posted by: R at November 21, 2008 06:01 PM

Your rage is misdirected Mr. Hull. Jackass entitled ATL comments notwithstanding, The associates are selling what they can when they can in a market that shows them no mercy, should it turn against them. Bonus is just a part of overall compensation. You seethe with disgust when using the term 'bonus,' when in fact lockstep bonuses are just wages that the firm does not have to pay payroll taxes on.

For a stinging indictment of your gung-ho, wealthy working man's hero schema check your 401K. You typify the business leaders of our time: myopic, vaguely enraged, and stunningly self-possessed. Whereas your parents were a Saturn V rocket marking progress to prosperity, yours has become a generation of bottle rockets: flying every which way and self destructing with little progress made.

Your compatriot referenced Milan Kundera's "Unbearable Lightness of Being" in a previous post. I find this intriguing. You and he seem to exemplify late 20th century corporatist 'kitsch.' Beneath your intelligible lies about some bogeyman associate's work ethic is an unintelligible truth. The contours of this truth, I believe, include the lack of meaning that our lives have, and the absurd point to which our value systems have evolved.

Posted by: Patrick Bateman at November 22, 2008 01:49 PM

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