11/02/08
Bonuses have been a popular topic of conversation in recent weeks not only because 2008 is drawing to a close, but also because the difficult economic year has forced many large law firms to drastically reduce their employee rewards programs.
One year ago, employees were celebrating their hefty bonus checks at the close of a boom year for law firms. In 2007 Davis Polk & Wardwell's revenues increased 21% to $789 million, according to this year's Am Law 100 ranking, and its 159 equity partners averaged $2.3 million in compensation, the 13th highest profits per partner nationally.
Davis Polk announced today that they plan to cut associate bonuses in half after other firms have made similar announcements. This year, bonuses will range from a prorated $17,500 for first year associates to $32,500 for eighth and ninth year associates. Based on last year's AmLaw 100 reporting of revenue and expenses, the reduction should save the firm roughly $13 million—or about a 3% cost savings.
The ''Associate Bonus Watch'' generated by legal blog Above the Law reveals other firms instituting similar figures. Last month both Simson Thacher Barlett; Skadden, Arps, Slate, Meagher & Flom; and Cravath, Swain and Moore announced that they would be offering the 06/07 bonus structure package and eliminating ''special bonuses'' (i.e. additional bonuses on top of what was already given).
In a statement to AmLaw Daily, John Ettinger, the Davis Polk's managing partner, reflected the sentiments of many other AmLaw 100 firms by stating that ''[The firm] has always believed that bonuses should reflect general economic conditions, including the environment that our clients are experiencing," In other words, firms recognize the message that employee bonus levels send to the clients that pay their bills. Ignoring market conditions and spending money to reward employees could be construed by some as poor business sense with the potential to damage client relationships.
If saving money in bonuses means fewer layoffs, many lawyers would forgo the extra compensation. An informal survey of its readers Above the Law found that almost one fourth of practicing respondents would accept a bonus of zero this year to avoid layoffs and that more than half would accept a bonus of $20K or less. In these difficult times, as one respondent put it, ''This year's bonus in biglaw: you're not fired. Let's hope most of us can get it.''
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