Law firms pay associate bonuses not only to incentivize excellent performance and high productivity, but also to entice lawyers to join them and stay. Firms may pay discretionary bonuses predicated on excellent associate work and strong financial performance of the firm, hours bonuses requiring a minimum number of annual billable hours for any bonus eligibility or an increase in compensation by a set dollar amount for annual hours billed over a specified minimum, or signing bonuses to sweeten an offer of employment and seal the deal.
While bonuses certainly can fatten your wallet, contribute to your job satisfaction, and keep you on the job and working hard, they are designed primarily to benefit the firm, not you. When it comes to associate retention, they can be effective. But, don’t let bonuses hamper your career move.
The timing of bonus payment often is a major factor when an associate is planning a career change. Most law firms calculate associate bonuses, whether hours- or performance-based, at the end of the law firm’s fiscal year and distribute them shortly thereafter. The rationale for the timing is that, even if you are doing a superlative job and billing tremendous amounts of hours early in the year, unforeseen circumstances—affecting either you or the law firm—could cause that to change. Consequently, it is impossible to accurately calculate your bonus until the close of the fiscal year. (Some firms give mid-year bonuses but save the major pay-outs for the end of the year so they can assess annual results and “true up” accordingly.)
Once you resign from your firm, the impetus for your current employer to pay you bonuses to incentivize further high volume and top-quality work, or attempt to retain you, disappears. Thus, the standard practice in the legal marketplace is for law firms to pay bonuses only to associates who are on the payroll and in good standing at the time the bonuses are paid. Some law firms delay the payment of the previous year’s bonuses for a month or two into the new year as a strategy to retain the associates even that much longer. Associates understand that and plan their moves accordingly.
Because bonuses can account for a significant sum, most associates try to leave as little money on the table as possible and aim to give notice and make their moves shortly after collecting the previous year’s payout. The later in the year you remain with a firm, the more you have “invested” in that year’s annual bonus (whether hours-based or discretionary) and the more money will be left behind when you resign. Consequently, more associates move to new firms early in the year and fewer make lateral moves as the year draws to a close.
One strategy to avoid forfeiting bonus money is to complete the interviewing, vetting, offer, and decision-making processes earlier in the year, but set a start date for after you receive your bonuses. Or, you can attempt to negotiate for a signing bonus from the new firm and/or a full or prorated year-end bonus as part of the offer. Note that these tactics are about getting more money from the new firm as part of their enticement for you to join; they are not an effort to collect anything from the firm you chose to leave.
The more attractive a candidate you are, the more bargaining power you will have. If you have superlative credentials or a skill or specialty that is uncommon and/or in short supply, you will have more leverage. The more the new employer wants or needs you, the stronger your bargaining position.
As an example, we recently worked with a stellar associate who received offers from several top law firms. His current firm paid top of the market base salaries, summer bonuses, and annual bonuses. He stood to lose significant money if he moved any time from mid-year through the end of the year. He attempted to negotiate with the firms from which he received offers that they pay him a signing bonus to make him “whole”. Because that was such a significant sum, even though he was a very attractive candidate, the firm whose offer he accepted chose, instead, to set a start date for after the first of next year.
This past March, we negotiated with a top firm to pay a superior candidate a full year-end bonus if he billed hours equivalent to the prorated minimum billable target for the eight months of this year he will be with the firm. It is not always the case, however, that an you will be eligible for any bonus from the new firm at the end of the year in which you join, especially if you start in the second half of the year. The earlier in the year you join the firm, the more likely it is that bonuses will be given for a full year or prorated.
If an attractive career opportunity comes your way late in the year, you must consider the pluses and minuses of making a move, taking into consideration the amount of bonus money in play. The new position most likely is available because that employer has a need to fill right away, and the position may not be available after the first of the year. If the new job cannot wait until after you collect your bonuses, you must decide whether the future potential of that opportunity—in terms of career growth and personal satisfaction—outweighs any money you may leave on the table at your current firm. If that is the case, don’t let your potential bonus stand in your way.