This article, ‘Terrified of the Unknown’: What’s Behind the Delay in Announcing Associate Bonuses, was published by the American Lawyer on December 1, 2022.
While Skadden became the latest firm whose year-end bonuses were confirmed, few other firms have announced associate bonuses. “They are scared shitless,” said one Am Law 25 firm leader about peers.
So far, few law firms have matched the Big Law year-end bonus scale for associates, even after Cravath, Swaine & Moore announced its own bonus structure.
According to law firm leaders and industry observers, few want to get out ahead in proclaiming they are matching an expensive bonus scale, since demand and profitability are sharply down, associate layoff news is circulating, and 2023 is full of uncertainty.
“They are terrified of the unknown,” said one Am Law 25 law firm leader about Big Law’s slow pattern in matching. “The one thing law firms don’t like is unknown. We don’t know what is going to happen, and all indications are there are still significant headwinds in transactions. Nobody wants to give out wild bonuses and at the same time pulling a Cooley.”
They are referring to the 78 attorneys and 72 paralegals and business staff Cooley is laying off, with the firm citing an “unexpected downturn” that is likely to persist well into 2023.
Indeed, a law firm making layoffs and then announcing bonuses to those who are left sends conflicting messages to the market. “Giving extraordinary bonuses right now is fraught with peril,” the law firm leader added.
“They are scared shitless,” the firm leader said about peers in the rest of the Am Law 200.
This isn’t to say the firms won’t announce bonuses, in one form or another. The thinking is that most of the usual suspects and elite firms will at some point make the decision to go public. They just don’t necessarily want to be one of the first.
“They don’t need, or want, to be out ahead on this,” said Alisa Levin, recruiter and principal at legal search firm Greene-Levin-Snyder in New York.
As of now, only about seven firms’ bonus announcements have been confirmed. That includes most recently Fried, Frank, Harris, Shriver & Jacobson and Skadden, Arps, Meagher, Slate & Flom, where a source familiar with the firm’s bonus structure on Thursday said it will match Cravath’s scale, with bonuses starting at $15,000 for junior associates. Similarly, a Fried Frank memo laid out a structure sticking to the same scale, including eighth-years receiving $115,000 bonuses.
Besides Cravath, Fried Frank and Skadden, the other firms with bonus announcements include Baker McKenzie, Boies Schiller Flexner, McDermott Will & Emery and New York boutique Holwell Shuster & Goldberg.
The few number of law firms matching the Cravath bonus scale in 2022 is a sharp departure from last year, when law firms were right out of the gate in confirming their bonus plans.
“It’s a different hiring market now,” said Levin, the New York recruiter. “Last year at this time, law firms were begging for associates, anything to help them add bodies. And their bonus announcements were a recruiting tool. Now they are concerned about what’s ahead and the implications of layoffs.”
Besides the problem of perception of declaring expensive bonuses, some law firms may also be uncertain if they can afford bonuses, considering demand is down and firms are confronting payment delays from clients. Some firms may not be in a strong position to be able to match what more profitable firms are doing.
Steve Nelson, a Washington, D.C., recruiter and executive principal at The McCormick Group, said the combination of a shaky and uncertain economy coupled with the uncertainty of collections in December has firms being cautious about making financial promises they are either unable or unwilling, to keep.
He also said that there is the possibility that some firms will only give “standard” bonuses to more junior attorneys and may look for alternative means to compensate their more seasoned, and more expensive, associates.
“With firms more and more going to merit bonus systems, it would not surprise me that firms will only announce bonuses for their more junior classes,” he said.
But, he said, there are associates of a certain age and in certain practice areas that are still in high demand, so compensating them adequately should still be a priority. “Those attorneys could still see significant bonuses,” he said.
