Let's Speculate Re: 2021 Year End Bonuses Forum

[Lubberlubber]

I know it's only June, but with corporate work not slowing down one iota (just heard we have 3 more deals kicking off next week and already on 6. FML), wanted to speculate about year end bonuses so I have something to look forward to.

Let's discuss. I am generally pessimistic but really would have thought transactional work would show signs of slowing down even a little bit by now. Our firm specifically cited the first quarter as the reason for the special bonuses, so given the continuing business, I would think year-end bonuses will be slightly higher than last year.

I am transactional (CM/M&A) at V10 NYC.

What do y'all think?

[Anonymous User]

I can't imagine they are anything different than last year considering most firms are already paying out the mid-year bonuses.

I think our best hope is a base salary increase some time this year.

[Lubberlubber]

While I do think we are somewhat overdue for a salary increase especially in this market, I would think firms would want to exhaust all the easier options first (I.e., bigger year end bonuses) before increasing salary. Increasing salary also does nothing for retention whereas year end bonuses do (esp if firms don’t put until February or March of 2022).

As is often discussed here, salary increases can never be rolled back but bonuses are always discretionary.

[Anonymous User]

I pessimistically wonder if firms would believe increased year-end bonuses would actually increase associate churn in early 2022. I’m a midlevel with plans to exit biglaw after I get one more year end check. Making that check even bigger would be even more of a push for me to say alright, that’s enough.

For retention, the best move would probably be static bonuses and a simultaneous announcement that there will be more special bonuses in the spring (with fall bonuses TBD, so stick around and find out!).

[attorney589753]

I pessimistically wonder if firms would believe increased year-end bonuses would actually increase associate churn in early 2022. I’m a midlevel with plans to exit biglaw after I get one more year end check. Making that check even bigger would be even more of a push for me to say alright, that’s enough.

For retention, the best move would probably be static bonuses and a simultaneous announcement that there will be more special bonuses in the spring (with fall bonuses TBD, so stick around and find out!).

I think the economics/incentive effects are pretty interesting. Bonuses especially for midlevels and seniors are high and designed to increase retention there, but as you say also can have the effect of letting some folks "tap out" earlier. (That thinking probably only works for associates who are avoiding too much life style creep and not just insta spending their bonuses.) Then what if bonuses multiple times a year going to become normal; on one hand, the firms are seeing those as retention tools (you always have a reason to stay) but does it ultimately end up doing the opposite if there's less overall pay tied up in that one December bonus check and associates just start accepting that there is no perfect time to exit without missing some bonus.

[Anonymous User]

Do you think there be any thought given to increasing the bonus scale going forward to account for the fact that people are making more in 2020/2021 because of all of the special COVID/retention bonuses than they presumably would in 2022 if it was a "normal" year?

I think it's really just optics to the associates to have less income going forward if these special bonuses eventually stop (relatively speaking since most associates presumably would increase by a class year) so I'm guessing partners won't give that concept any thought, but we can be hopeful.

[Lubberlubber]

Do you think there be any thought given to increasing the bonus scale going forward to account for the fact that people are making more in 2020/2021 because of all of the special COVID/retention bonuses than they presumably would in 2022 if it was a "normal" year?

I think it's really just optics to the associates to have less income going forward if these special bonuses eventually stop (relatively speaking since most associates presumably would increase by a class year) so I'm guessing partners won't give that concept any thought, but we can be hopeful.

Eh I mean look at 2007-2009. In 2007 there were huge special bonuses, then when the bottom fell out in 2008, bonuses went back to being tiny. The differences were crazy. A first year got $45k in 2007 but $7.5k in 2009. A 7th year for $110k in 2007 but $30K in 2009!!

I don't think the bubble bursting this time will be quite as dramatic, but shows that no one should expect bonuses/comp to always be growing. However if things are still this busy into Q3 this year...fall bonuses might need to be on the table or at least some indication that people shouldn't peace out ASAP.

[ConfusedNYer]

I pessimistically wonder if firms would believe increased year-end bonuses would actually increase associate churn in early 2022. I’m a midlevel with plans to exit biglaw after I get one more year end check. Making that check even bigger would be even more of a push for me to say alright, that’s enough.

For retention, the best move would probably be static bonuses and a simultaneous announcement that there will be more special bonuses in the spring (with fall bonuses TBD, so stick around and find out!).

I agree that a lot of bonus activity is aimed at retention and simply having a bigger year end bonus is probably not the best tool for doing that, but I think logistically that likely means a bigger "year end" bonus with the extra amount paid out 4-6 months later. This could allow firms to further standardize the mid-year bonuses (which I expect will likely remain until the next big down cycle) - which I imagine a lot of firms would like (as opposed to having a competitor randomly drop the bonus on you.) Preemptively announcing "hey will will also have undisclosed midyear bonuses in 2022" seems both weird in structure and less effective, given that a good chunk of at-risk associates may be rightly skeptical.

Of course that requires one of the big players to take the initiative which is always a bit iffy. The one hiccup here would be issues relating to the end of year financials that are just going over my head.

[Anonymous User]

If firms were smart, they'd just move the bonus model to quarterly bonus payments. You collect your bonus as you go throughout the year rather than 1 lump sum at the end of the year. This would encourage retention (each associate would constantly think - just 3 months until my next bonus payment and then I'm gone for sure) while not changing firm economics.

Not a tax lawyer and no idea if there's tax issues with this model. I guess operationally, it doesn't give you the freedom to adjust bonus based on business financials. However, you could just have a standing notice that bonuses will be paid on a quarterly basis without actually committing to a hard number. That way, the firm would determine each quarter the bonus payment allowing more flexibility and encouraging retention.

Edit: Now that I think about it more, it would also smooth out turnover because instead of a bunch of associates leaving year end as soon as bonus hits, they'd leave throughout the year. Additionally, it would be a huge benefit to associates due to time-value of money, they're collecting their bonus more regularly and earlier than the current bonus schedule. Any downsides to this model?

[Chrstgtr]

If firms were smart, they'd just move the bonus model to quarterly bonus payments. You collect your bonus as you go throughout the year rather than 1 lump sum at the end of the year. This would encourage retention (each associate would constantly think - just 3 months until my next bonus payment and then I'm gone for sure) while not changing firm economics.

Not a tax lawyer and no idea if there's tax issues with this model. I guess operationally, it doesn't give you the freedom to adjust bonus based on business financials. However, you could just have a standing notice that bonuses will be paid on a quarterly basis without actually committing to a hard number. That way, the firm would determine each quarter the bonus payment allowing more flexibility and encouraging retention.

Edit: Now that I think about it more, it would also smooth out turnover because instead of a bunch of associates leaving year end as soon as bonus hits, they'd leave throughout the year. Additionally, it would be a huge benefit to associates due to time-value of money, they're collecting their bonus more regularly and earlier than the current bonus schedule. Any downsides to this model?

A bunch of bonus would be paid out to people who are leaving. It would result in some people getting bonuses who otherwise wouldn't because of hours. Firms won't know if their financials are as good as they predict and may end up paying better bonuses than they otherwise would have in early quarters. Time value of money also cuts the other way too. This gets rid of any financial cushion the firm might have if there is a serious slowdown, which may result in other cuts like layoffs quicker than necessary.

[NewSouthernAssociate]

If firms were smart, they'd just move the bonus model to quarterly bonus payments. You collect your bonus as you go throughout the year rather than 1 lump sum at the end of the year. This would encourage retention (each associate would constantly think - just 3 months until my next bonus payment and then I'm gone for sure) while not changing firm economics.

Not a tax lawyer and no idea if there's tax issues with this model. I guess operationally, it doesn't give you the freedom to adjust bonus based on business financials. However, you could just have a standing notice that bonuses will be paid on a quarterly basis without actually committing to a hard number. That way, the firm would determine each quarter the bonus payment allowing more flexibility and encouraging retention.

Edit: Now that I think about it more, it would also smooth out turnover because instead of a bunch of associates leaving year end as soon as bonus hits, they'd leave throughout the year. Additionally, it would be a huge benefit to associates due to time-value of money, they're collecting their bonus more regularly and earlier than the current bonus schedule. Any downsides to this model?

My initial reaction to this:
1) This would be difficult to implement at firms that have hours requirements and could result in associates missing payments unless the firms allow catchup payments. Also, some firms take annual performance reviews into consideration as well to determine who is bonus eligible.
2) At least at my firm, a lot of outstanding client bills are paid in November/December before year-end. I assume some of this cash goes toward our bonuses.

I think it would be interesting if firms offered a small bonus for months you bill excessive hours. For example, $1,000 for each month you bill over 200 hours would be a nice token of appreciation.

[LittleRedCorvette]

If firms were smart, they'd just move the bonus model to quarterly bonus payments. You collect your bonus as you go throughout the year rather than 1 lump sum at the end of the year. This would encourage retention (each associate would constantly think - just 3 months until my next bonus payment and then I'm gone for sure) while not changing firm economics.

Not a tax lawyer and no idea if there's tax issues with this model. I guess operationally, it doesn't give you the freedom to adjust bonus based on business financials. However, you could just have a standing notice that bonuses will be paid on a quarterly basis without actually committing to a hard number. That way, the firm would determine each quarter the bonus payment allowing more flexibility and encouraging retention.

Edit: Now that I think about it more, it would also smooth out turnover because instead of a bunch of associates leaving year end as soon as bonus hits, they'd leave throughout the year. Additionally, it would be a huge benefit to associates due to time-value of money, they're collecting their bonus more regularly and earlier than the current bonus schedule. Any downsides to this model?

My initial reaction to this:
1) This would be difficult to implement at firms that have hours requirements and could result in associates missing payments unless the firms allow catchup payments. Also, some firms take annual performance reviews into consideration as well to determine who is bonus eligible.
2) At least at my firm, a lot of outstanding client bills are paid in November/December before year-end. I assume some of this cash goes toward our bonuses.

I think it would be interesting if firms offered a small bonus for months you bill excessive hours. For example, $1,000 for each month you bill over 200 hours would be a nice token of appreciation.

Cool, automatic $12k raise...

[Anonymous User]

I feel like the incentives are a little weird here. At my NY v5, which has lost ~20-25% of its corporate associates in 2021, the overwhelming majority of people leaving went to other biglaw market paying firms.

If they raised bonuses or salaries, all the firms that are poaching talent would match and the end result would just be a higher comp expense with no added retention benefit. I imagine this is true among lot of “market leader” firms.

At the same time, they have to do something (staffing is comically lean at the moment) and obviously big law partners know no way to make anyone’s life less miserable other than to throw money at them. Unclear how these dynamics mesh but something has to give.

[Lubberlubber]

I feel like the incentives are a little weird here. At my NY v5, which has lost ~20-25% of its corporate associates in 2021, the overwhelming majority of people leaving went to other biglaw market paying firms.

If they raised bonuses or salaries, all the firms that are poaching talent would match and the end result would just be a higher comp expense with no added retention benefit. I imagine this is true among lot of “market leader” firms.

At the same time, they have to do something (staffing is comically lean at the moment) and obviously big law partners know no way to make anyone’s life less miserable other than to throw money at them. Unclear how these dynamics mesh but something has to give.

For years, with each and every salary increase and extra bonus, people have been saying "this is finally the year we see non-elite firms not being able to keep up!" And it has never happened. My take on this is comp is still not high enough at the top firms.

If they really really want to distinguish themselves and stop the bleeding, they need to substantially raise salary/bonuses to the point where other lower-ranked firms literally can't afford to match. So...Wachtell-level comp at all of the V10. At that point, I guess we won't see lateraling from V10 to V100.

With how much PPP has increased in the last 10 years, I would not think a substantial salary increase ($210k or even $250k for first years + bigger bonus) is out of whack.

[thisismytlsuername]

I feel like the incentives are a little weird here. At my NY v5, which has lost ~20-25% of its corporate associates in 2021, the overwhelming majority of people leaving went to other biglaw market paying firms.

If they raised bonuses or salaries, all the firms that are poaching talent would match and the end result would just be a higher comp expense with no added retention benefit. I imagine this is true among lot of “market leader” firms.

At the same time, they have to do something (staffing is comically lean at the moment) and obviously big law partners know no way to make anyone’s life less miserable other than to throw money at them. Unclear how these dynamics mesh but something has to give.

For years, with each and every salary increase and extra bonus, people have been saying "this is finally the year we see non-elite firms not being able to keep up!" And it has never happened. My take on this is comp is still not high enough at the top firms.

If they really really want to distinguish themselves and stop the bleeding, they need to substantially raise salary/bonuses to the point where other lower-ranked firms literally can't afford to match. So...Wachtell-level comp at all of the V10. At that point, I guess we won't see lateraling from V10 to V100.

With how much PPP has increased in the last 10 years, I would not think a substantial salary increase ($210k or even $250k for first years + bigger bonus) is out of whack.

I agree with this in principle, but in reality, there's no way that partners decrease their own comp by 25%+ from one year to the next to significantly raise salaries for associates. Especially since they already have to figure out a way to maintain their comp levels as in-person expenses come back.

[Anonymous User]

Are there any well-regarded IO / labor market papers analyzing biglaw associates? Is comp in finance and consulting as uniform at the top 50-100 firms (or whatever the right comparison set is, adjusting for the more highly concentrated nature of those industries), as it is in law?

In theory, it seems like "Cravath scale" should be an unstable equilibrium because (i) there's a wide set of firms (30ish? 50ish?) that are rich enough to bump associates' pay by $10k-$30k without much of a dent in their own finances, and (ii) all it takes is a single mover — nobody is going to ignore the raise, whether it comes from Cravath or from Fried Frank. Absent explicit collusion (inter-firm agreements, pacts, and the like), you might expect it to play out like a prisoner's dilemma situation.

In practice, however, the reputational benefits of being 'first mover' are not strong enough to have actual effects on recruiting, laterals, etc. — which is where the rubber meets the road. I for one strongly respect Milbank for pushing to $190k (and being a great firm to boot), but I'd be surprised if that's percolated into the consciousness of most T14 students at OCI. The outdated fixation with prestige dilutes the effect of money. If associates were a bit more clear-eyed and hard-nosed about going to whatever firm has a track record of paying above-market, maybe we'd start to see more movement. If that means more and more students choosing K&E over Cravath (or whatever), then so be it.

Not opposed to top firms competing with each other on lifestyle/quality of workplace, but that just seems totally incompatible with the business model.

[Anonymous User]

I feel like the incentives are a little weird here. At my NY v5, which has lost ~20-25% of its corporate associates in 2021, the overwhelming majority of people leaving went to other biglaw market paying firms.

If they raised bonuses or salaries, all the firms that are poaching talent would match and the end result would just be a higher comp expense with no added retention benefit. I imagine this is true among lot of “market leader” firms.

At the same time, they have to do something (staffing is comically lean at the moment) and obviously big law partners know no way to make anyone’s life less miserable other than to throw money at them. Unclear how these dynamics mesh but something has to give.

For years, with each and every salary increase and extra bonus, people have been saying "this is finally the year we see non-elite firms not being able to keep up!" And it has never happened. My take on this is comp is still not high enough at the top firms.

If they really really want to distinguish themselves and stop the bleeding, they need to substantially raise salary/bonuses to the point where other lower-ranked firms literally can't afford to match. So...Wachtell-level comp at all of the V10. At that point, I guess we won't see lateraling from V10 to V100.

With how much PPP has increased in the last 10 years, I would not think a substantial salary increase ($210k or even $250k for first years + bigger bonus) is out of whack.

I agree with this in principle, but in reality, there's no way that partners decrease their own comp by 25%+ from one year to the next to significantly raise salaries for associates. Especially since they already have to figure out a way to maintain their comp levels as in-person expenses come back.

Original anon: that’s an interest point that there is SOME level of comp increase that could make a difference but I think the point still stands that absent something dramatic, you’ve accomplished nothing in terms of retention if you are CSM/S&C/DPW/STB and offer everyone an extra “special bonus” amount. Nothing I have heard from any partner suggests that we are likely to see something dramatic on comp (they all think we are overpaid as it is).

[Anonymous User]

This doesn't help things right now, but firms could always just hire more incoming junior associates to help with the inevitable hemorrhaging of mid-levels.

[attorney589753]

I feel like the incentives are a little weird here. At my NY v5, which has lost ~20-25% of its corporate associates in 2021, the overwhelming majority of people leaving went to other biglaw market paying firms.

If they raised bonuses or salaries, all the firms that are poaching talent would match and the end result would just be a higher comp expense with no added retention benefit. I imagine this is true among lot of “market leader” firms.

At the same time, they have to do something (staffing is comically lean at the moment) and obviously big law partners know no way to make anyone’s life less miserable other than to throw money at them. Unclear how these dynamics mesh but something has to give.

For years, with each and every salary increase and extra bonus, people have been saying "this is finally the year we see non-elite firms not being able to keep up!" And it has never happened. My take on this is comp is still not high enough at the top firms.

If they really really want to distinguish themselves and stop the bleeding, they need to substantially raise salary/bonuses to the point where other lower-ranked firms literally can't afford to match. So...Wachtell-level comp at all of the V10. At that point, I guess we won't see lateraling from V10 to V100.

With how much PPP has increased in the last 10 years, I would not think a substantial salary increase ($210k or even $250k for first years + bigger bonus) is out of whack.

I agree with this in principle, but in reality, there's no way that partners decrease their own comp by 25%+ from one year to the next to significantly raise salaries for associates. Especially since they already have to figure out a way to maintain their comp levels as in-person expenses come back.

It's a dynamic worth keeping an eye on IMO. If you are losing so many associates that you are turning down work (my understanding is this is happening at a lot of firms), then partner comp is itself at risk due to associate turnover. Yes just piling more work onto associates who are left can work to some extent, but only so far if you are losing good associates and that might only cause more defection/lateral. You can hire more associates into the pipeline but that is a multiyear solution in biglaw because we all know first and even second years aren't really independent workers. You can go hire in the lateral market but every law firm is hiring there right now. I do think it has been a long time (10+ years?) since we have seen associate dynamics like this; probably always better to bet on the status quo continuing in biglaw but if there was ever going to be a change then it would probably be this year or next. What's funny is that I'm not entirely sure throwing more $ at associates significantly helps retention either — but wouldn't hurt.

[Anonymous User]

I feel like the incentives are a little weird here. At my NY v5, which has lost ~20-25% of its corporate associates in 2021, the overwhelming majority of people leaving went to other biglaw market paying firms.

If they raised bonuses or salaries, all the firms that are poaching talent would match and the end result would just be a higher comp expense with no added retention benefit. I imagine this is true among lot of “market leader” firms.

At the same time, they have to do something (staffing is comically lean at the moment) and obviously big law partners know no way to make anyone’s life less miserable other than to throw money at them. Unclear how these dynamics mesh but something has to give.

For years, with each and every salary increase and extra bonus, people have been saying "this is finally the year we see non-elite firms not being able to keep up!" And it has never happened. My take on this is comp is still not high enough at the top firms.

If they really really want to distinguish themselves and stop the bleeding, they need to substantially raise salary/bonuses to the point where other lower-ranked firms literally can't afford to match. So...Wachtell-level comp at all of the V10. At that point, I guess we won't see lateraling from V10 to V100.

With how much PPP has increased in the last 10 years, I would not think a substantial salary increase ($210k or even $250k for first years + bigger bonus) is out of whack.

I agree with this in principle, but in reality, there's no way that partners decrease their own comp by 25%+ from one year to the next to significantly raise salaries for associates. Especially since they already have to figure out a way to maintain their comp levels as in-person expenses come back.

It's a dynamic worth keeping an eye on IMO. If you are losing so many associates that you are turning down work (my understanding is this is happening at a lot of firms), then partner comp is itself at risk due to associate turnover. Yes just piling more work onto associates who are left can work to some extent, but only so far if you are losing good associates and that might only cause more defection/lateral. You can hire more associates into the pipeline but that is a multiyear solution in biglaw because we all know first and even second years aren't really independent workers. You can go hire in the lateral market but every law firm is hiring there right now. I do think it has been a long time (10+ years?) since we have seen associate dynamics like this; probably always better to bet on the status quo continuing in biglaw but if there was ever going to be a change then it would probably be this year or next. What's funny is that I'm not entirely sure throwing more $ at associates significantly helps retention either — but wouldn't hurt.

I agree that throwing money at associates is only marginally helpful but I think this industry is so morally and intellectually bankrupt that there is quite literally nothing else that they are capable of doing to make associates happy.

Just to back envelope it a bit, I see 321 associates at Cravath on their website and 97 partners. If Cravath were to pay associates on average an extra $100k on average (a number I made up for the sake of illustration), that would come to roughly 330k/partner. With a 2020 PPP of 4,576,000, that’s a roughly a 7.2% paycut per partner.

Similarly, S&C I see has 446 associates and 164 partners so a $100k/associate cost increase would be $272k/partner or ~5.25% of their 5,185,000 2020 PPP.

DPW has 548 associates and 158 partners on their website so that would be ~$347k/partner or 5.46% of 2020 PPP ($6,350,000).

That’s a lot of money for partners to leave on the table and I’m skeptical they’d do it but if push came to shove, they could certainly afford to materially raise comp. Obviously the math is made up (I ignored people with titles other than associate/partner; didn’t consider anyone’s seniority; other things I probably didn’t think of) but I think the point stands.

[Bosque]

I pessimistically wonder if firms would believe increased year-end bonuses would actually increase associate churn in early 2022. I’m a midlevel with plans to exit biglaw after I get one more year end check. Making that check even bigger would be even more of a push for me to say alright, that’s enough.

For retention, the best move would probably be static bonuses and a simultaneous announcement that there will be more special bonuses in the spring (with fall bonuses TBD, so stick around and find out!).

I think the economics/incentive effects are pretty interesting. Bonuses especially for midlevels and seniors are high and designed to increase retention there, but as you say also can have the effect of letting some folks "tap out" earlier. (That thinking probably only works for associates who are avoiding too much life style creep and not just insta spending their bonuses.) Then what if bonuses multiple times a year going to become normal; on one hand, the firms are seeing those as retention tools (you always have a reason to stay) but does it ultimately end up doing the opposite if there's less overall pay tied up in that one December bonus check and associates just start accepting that there is no perfect time to exit without missing some bonus.

Not to derail the conversation, but who the hell is insta spending 30-60K (after taxes) every single year? What are they doing, buying disposable cars?

[Anonymous User]

Partners won't take even that big of a hit on their paychecks for a dramatic salary rise, they will increase rates and clients will cover the majority of it.

[Lubberlubber]

Partners won't take even that big of a hit on their paychecks for a dramatic salary rise, they will increase rates and clients will cover the majority of it.

Exactly--rates have already been going up like crazy anyway. 10 years ago it was a big deal that the top partners were charging over $1k/hour. Nowadays that's the standard hourly rate of a 5th year at a V10.

To respond to other poster above's point, instead of looking just at how much it would cost partners to give a $100k raise, look at how much PPP has increased over the last 10 years. No matter how you look at it, partner comp has increased wayyyyy more than associate comp. It's time for a substantial raise. Put another way, if partners gave $100k raises to associates, their own comp would still be way higher than it was 10 years ago.

[Ultramar vistas]

Agreed, feels like I’m banging my head against a brick wall sometimes with partners who will casually mention that they think associates are already close to overpaid, but when you look at the historic income and particularly the spread between associates and partners, we’re worse off than those same partners ever were as associates. The hypocrisy of people who make it and then pull up the ladder behind them is just extraordinary.

[Anonymous User]

Agreed, feels like I’m banging my head against a brick wall sometimes with partners who will casually mention that they think associates are already close to overpaid, but when you look at the historic income and particularly the spread between associates and partners, we’re worse off than those same partners ever were as associates. The hypocrisy of people who make it and then pull up the ladder behind them is just extraordinary.

So given today's big news (esp if DPW, etc., re-raises for midlevels and seniors), are people more inclined to think bonuses will stay the same?

I think it's interesting, since year end bonuses won't be announced for another 5 months or so. Perhaps by then the market will need another shot of adrenaline to keep the associates from fleeing, but that might just be my wishful thinking. After all, the mid-year bonuses were announced less than 3 months ago so one might have thought firms would hold back the salary raise until the fall/winter.