The Bonus Question

The Bonus Question

Most major law firms pay annual associate bonuses during the months of January and February. Firms eye their competition and try to match or slightly outdo each other without giving away too much of their precious partnership profits. As each new year begins, many lawyers wonder: How much will my bonus be? Or, in tough economic times, will I receive any bonus at all? And, underlying those questions is: What does the amount of my bonus, or lack thereof, say about the firm’s opinion of me, or about the health and future of the firm itself?

In boom years, most law firms share the wealth. When times are good, law firms vie for associates and use hefty bonuses to lure and retain the best talent. Historically, competition among the top firms was intense during the dot-com boom, when there were mass defections to start-up companies and, again, during the flush times of 2006-2008. Conversely, during tight economic times, such as those experienced in the most recent recession, some law firms could not afford generous – or any - bonuses. In those cases, their associate ranks and the legal community at large questioned what this meant about the future of these firms.

Now, after almost 10 years of recovery, top firms again boast of their bonus largesse. The size of associate bonuses is a way to establish or reinforce the pecking order among top law firms. Those with the most prestige or highest profits communicate their preeminence to the legal community via the generosity of their associate bonuses.

Given the generosity of law firms in good times, many associates view year-end bonuses as an expected part of their compensation packages. Thus, it can come as a shock when firms can afford only reduced bonuses or none at all. The very definition of a bonus, however — a payment in addition to the required or customary amount, distributed to employees at the end of a year in which the employee and/or the company performed very well — leads to the conclusion that a bonus is discretionary rather than an entitlement. Yet, in many associates’ minds, it’s not a question of whether they would receive bonuses, only of the amount.

To counterbalance these assumptions, and to deal with economic realities, many law firms require that associates earn their large bonuses by tying bonus amounts to certain billable hour thresholds or the associate’s “contribution to the firm.” Some firms demand more than 2,400 billable hours per year to reach the top tier of the bonus structure. When business is slow in some practice areas, finding enough work just to meet minimum billable requirements is a challenge, let alone logging enough hours to earn the largest bonuses.

Some firms handle the bonus situation completely differently by assigning participation points to associates, much as equity partners receive profit-sharing points in most law firms. Where participation points are used for associates, their year-end compensation is determined to some degree by the profitability of the firm rather than by the individual’s performance alone.

Although virtually all firms give annual performance reviews, money talks. If an associate receives a smaller bonus than other colleagues of the same seniority at the firm, he or she must ask what that means. If the reduced bonus is due to low billable hours, that problem needs addressing. Perhaps the associate should be more assertive in seeking assignments or informing the partners of a desire to handle a wider variety of matters. If those efforts don’t result in a heavier workload, the associate seriously must assess his or her future with the firm. Perhaps the firm is in financial difficulty, or the associate isn’t one of the “go to” attorneys in the firm. Either way, unless the situation is remedied quickly, it’s time to dust off the résumé and evaluate career opportunities elsewhere.

Valerie Fontaine
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