The next shot across the bow in the salary wars . . .

Graduate School Law School
1

<p>These are some exerpts from an article in the New York Law Journal today.</p>

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Sullivan & Cromwell to Pay Senior Associates Bonuses Tied to Firm's Performance

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Sullivan & Cromwell has unveiled a plan to pay senior associates and counsels supplemental bonuses tied to the firm's financial performance. According to a memo circulated internally Wednesday, the New York firm will set aside a pool for the new bonuses, which are for associates at the fifth-year level and up, as well as counsels, and which will be paid in addition to those lawyers' base salaries and normal year-end bonuses.

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The memo stated that the 2007 pool was currently anticipated to be around $2.5 million but that the final amount would be determined in February 2008 based on factors including the firm's financial results and its overall activity level. Though it retained discretion, the firm said it expected most associates at the same level to receive the same bonus.

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With the supplemental bonus, the most senior associates at Sullivan & Cromwell can expect to earn total compensation of around $400,000, based on the current top base salary of $310,000 and last year's $60,000 year-end bonus.

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2

<p>S&C has had one of the hightest turnover rates of any large firm. I think it improved in '06, and it will be interesting to see if this helps. The problem is that, no matter how much they pay, the top senior associates who they really want to keep will still have choices that pay as much or more. In my experience, and I have seen firms go down this road before, throwing money doesn't usually accomplish what they want. Partnership remains elusive. Many are not leaving for money, but for a change in lifestyle. A senior associate I am working with just turned down an offer yesterday that gave him an immediate increase of $40k with a probable doubling of his salary within a year or so. He turned it down because his current firm allowed him to come in late 3 days a week so he could take his kids to school.</p>

3

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**Partnership remains elusive.

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Pushing more money for more hours won't cure this problem.</p>

4

<p>I agree with you, cartera. I think that until these biglaw firms make some changes that allow associates (and partners, for that matter) to live their lives with fewer sacrifices (like not missing weddings, anniversaries and graduations -- and I have seen all of these happen multiple times), these firms will continue to lose their most profitable and valuable senior associates to other opportunities. Of course, there will always be some sacrifices, because you don't get paid that kind of money for nothing, for for many attorneys, I think the question becomes, "How much do I really need to make to live comfortably?". Senior associates at firms like S&C, Cravath, Wachtell and Davis Polk, in particular (at least in the NYC area marketplace, and particularly with respect to corporate practice associates) have outside opportunities that come across their desks every day. I don't know that an extra $30,000 or less per year is going to make or break someone's decision to leave.</p>

5

<p>I think this is in response to the associates wanting ny to go to 190. With this, you can say you are paying those you need more while at the same time saving $$ from paying jr associates more. This also seems like an attempt to make S&C the 3rd highest salary in biglaw, right behind WLRK and Kirkland.</p>

6

<p>Actually, LaxAttack, this move by S&C was in response to a series of meetings that the firm held with associates at all levels to determine what factors would be important to associates to increase retention. The idea of some kind of profit-sharing was listed by associates as incredibly attractive, as it allows senior associates to take part in the benefits of their hard work, increased hours and higher firm profitability. </p>

<p>You say that associates want NYC biglaw firms to go to $190k, but I think that is merely stating the obvious. Of course, everyone wants to be paid more -- there are entire websites and blogs dedicated to associate pay. The real issue S&C was trying to address, though, is not simply a financial one, though this particular solution is monetary. The perpetual issue that has been coming up for years now is determining what will make associates want to stay, particularly through their fifth and higher years, when the associates are most profitable to the firm, and money is only part of that picture. This monetary solution is an attempt to make associates feel a part of the growth and success of the firm, as much as it seeks to give a bit more money. I think the real changes will only come, however, when S&C (and others similarly situated) make real changes in the amount of respect accorded to people's lives. I'm not talking about the ability to leave every day at 6 p.m. here -- I'm talking about respecting the fact that associates occasionally have weddings, anniversaries, birthdays and graduations to attend, and that sometimes work may have to wait for these reasons. We'll see what S&C and others are willing to do. </p>

<p>Oh, and I am quite certain that S&C doesn't care about what a Kirkland & Ellis associate might make (which, by the way, is not lockstep, and top comp and bonuses are paid to only a portion of each class), since S&C looks at its peer group (in terms of salary) as Cravath, DPW, Simpson and Skadden. I know you'll want to argue with me here, LaxAttack, but I am quite confident that my statements here are the absolutely correct facts.</p>

7

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You say that associates want NYC biglaw firms to go to $190k, but I think that is merely stating the obvious. Of course, everyone wants to be paid more -- there are entire websites and blogs dedicated to associate pay. The real issue S&C was trying to address, though, is not simply a financial one, though this particular solution is monetary. The perpetual issue that has been coming up for years now is determining what will make associates want to stay, particularly through their fifth and higher years, when the associates are most profitable to the firm, and money is only part of that picture. This monetary solution is an attempt to make associates feel a part of the growth and success of the firm, as much as it seeks to give a bit more money. I think the real changes will only come, however, when S&C (and others similarly situated) make real changes in the amount of respect accorded to people's lives. I'm not talking about the ability to leave every day at 6 p.m. here -- I'm talking about respecting the fact that associates occasionally have weddings, anniversaries, birthdays and graduations to attend, and that sometimes work may have to wait for these reasons. We'll see what S&C and others are willing to do.

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<p>I disagree. Obviously everyone wants to get paid more but associates in NYC have a legitimate complaint when they argue nyc to 190. With every other market, including places like chicago, houston, boston, at 160k there's no way nyc stands out. NYC is the legal capital of the world, coupled with this NYC associates often work longer hours, on bigger deals, and generate the most revenue. Plus they have an enormous cost of living and thus there has been an especially large uproar about being paid the same as the guy who works 55 hrs/week in houston texas yet still gets the same pay and can afford a 5,000 sq foot house his 2nd year. </p>

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Oh, and I am quite certain that S&C doesn't care about what a Kirkland & Ellis associate might make (which, by the way, is not lockstep, and top comp and bonuses are paid to only a portion of each class), since S&C looks at its peer group (in terms of salary) as Cravath, DPW, Simpson and Skadden. I know you'll want to argue with me here, LaxAttack, but I am quite confident that my statements here are the absolutely correct facts.

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<p>S&C cares about what every associate at every firm makes, especially those of which it is competing (K&E is one of those firms). If one firm makes a move then the talent which S&C relies on during recruitment will be taken by another firm. And, contrary to what you may think, K&E does have lockstep bonuses....please get your facts straight: <a href="http://www.infirmation.com/bboard/clubs-fetch-msg.tcl?msg_id=0035YN%5B/url%5D"&gt;http://www.infirmation.com/bboard/clubs-fetch-msg.tcl?msg_id=0035YN&lt;/a> . Notice they give out bonuses at 18/20/22/24...this is something that makes kirkland stand out. If you work more, you get paid more. Notice that the 1st chart was an estimate of the bonuses while this chart is the actual bonus numbers: <a href="http://www.infirmation.com/bboard/clubs-fetch-msg.tcl?msg_id=0035kz%5B/url%5D"&gt;http://www.infirmation.com/bboard/clubs-fetch-msg.tcl?msg_id=0035kz&lt;/a>
Notice that for a 1st year, the median bonus at kirland was 52k. Also they are lockstep on 18/20/22/24 hundred hours, meaning if you work more you get paid more. This is especially important for NYC associates because they are often working brutal hours. Why should I work at S&C and work 2400 hours and get a 35k bonus when I can work at K&E and get a 50k bonus?</p>

8

<p>First of all, LaxAttack, please take my word here that everything that I have said here about S&C is absolutely true. Unless you are currently an attorney at S&C, you were at the associate and partner meetings where these issues were discussed, and have heard completely differing information from what I know, you might want to reconsider your reinterpretation of S&C's goals and motives. Or did you have yet another third party source who is feeding you information about the inner workings at S&C? I will reiterate here that it is not all about money (and, for that matter, I don't see too many NYC biglaw associates leaving for Houston). The real issues here include partnership prospects, feeling a part of the earnings and profits of the firm (rather than just being a cog in the machine), lifestyle and respect. Senior associates at a firm such as S&C have many opportunities to go and work elsewhere should they choose to do so, and many do indeed make that choice, even if they take a pay cut. </p>

<p>Furthermore, when it comes to a K&E associate's ability to earn a bonus, it is far from entirely up to that associate how much he or she works and how many hours he or she bills. Therefore, the amount of the bonus that an associate receives, and how many associates actually receive the highest available bonus, are variable factors. This is inherently the problem with all of the firms that tie bonuses to hours billed. Oh, and firms like S&C, Cravath, Wachtell, DPW and Simpson explicitly do not tie their bonuses to hours billed, so that everyone in each class receives the same, truly lockstep, bonus (with certain exceptions for very senior associates (i.e. 8th years and above). </p>

<p>Take my statements as true or ignore them -- it's your choice.</p>

9

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First of all, LaxAttack, please take my word here that everything that I have said here about S&C is absolutely true. Unless you are currently an attorney at S&C, you were at the associate and partner meetings where these issues were discussed, and have heard completely differing information from what I know, you might want to reconsider your reinterpretation of S&C's goals and motives

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<p>Were you in the S&C meetings? You are a fool if you think the firm has anything but it's profits and reputation in mind. You also fall into this category if you think the firm is 100% honest and forthright during associate meetings and memos. People aren't leaving S&C for Houston, but they are leaving them for ibanking and PE. Also I think it's important to note that this extra pay will be about 15k (2.5 mill/# of sr associates/counsel) , and it's not like you're increasing partnership chances with it?? What they are doing is retaining senior associates while at the same time balking at another pay raise across the scale. </p>

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Furthermore, when it comes to a K&E associate's ability to earn a bonus, it is far from entirely up to that associate how much he or she works and how many hours he or she bills. Therefore, the amount of the bonus that an associate receives, and how many associates actually receive the highest available bonus, are variable factors. This is inherently the problem with all of the firms that tie bonuses to hours billed. Oh, and firms like S&C, Cravath, Wachtell, DPW and Simpson explicitly do not tie their bonuses to hours billed, so that everyone in each class receives the same, truly lockstep, bonus

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<p>Here is where I know you are wrong. K&E has lockstep bonuses based on hours. And I know this from a first hand source, an attorney at the chicago office. If you bill 18-20 you get around this bonus, 20-22 and u get this, 22-24 this, and 24+ you get this. Unless you are an associate at K&E I think you're at a loss on this one.</p>

10

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Here is where I know you are wrong. K&E has lockstep bonuses based on hours. And I know this from a first hand source, an attorney at the chicago office. If you bill 18-20 you get around this bonus, 20-22 and u get this, 22-24 this, and 24+ you get this. Unless you are an associate at K&E I think you're at a loss on this one.

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<p>That seems to be exactly what I said, doesn't it. There are lockstep bonuses BASED UPON HOURS. That isn't quite the same thing as true lockstep bonuses, where everyone in a given class year is given the same bonus regardless of hours. Just to reiterate, in a firm with hours-based bonuses, you can never know what your bonus will be because, as an associate, it is not up to you how many hours you bill. You might be a gunner who wants to bill 2400 hours so that you can get the highest bonus, but unfortunately, if your department is slower, or you don't happen to be on the busiest and most time-consuming deals, or if the economy slows, it just isn't going to happen. You would understand this if you had ever worked for a law firm, LaxAttack. Maybe your buddy at K&E (where I admittedly have never worked) can let us know how many associates out of the class years there got the highest bonus, the second highest bonus, etc. The information that I have tells me that the vast majority of associates at K&E were in the bottom two buckets of bonuses. If you have the hard stats (which I know K&E is loathe to disclose), please fill us in.</p>

<p>Aren't you still in undergrad, LaxAttack? If so, how did you end up sitting in on those meetings at S&C? In case you weren't there, you might want to reconsider questioning my knowledge of what went on at S&C. In any event, I promise that the information that I have provided here is solid and based on facts, and hopefully, no one reading this board will be misguided by your statements here.</p>

11

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Just to reiterate, in a firm with hours-based bonuses, you can never know what your bonus will be because, as an associate, it is not up to you how many hours you bill. You might be a gunner who wants to bill 2400 hours so that you can get the highest bonus, but unfortunately, if your department is slower, or you don't happen to be on the busiest and most time-consuming deals, or if the economy slows, it just isn't going to happen. You would understand this if you had ever worked for a law firm, LaxAttack. Maybe your buddy at K&E (where I admittedly have never worked) can let us know how many associates out of the class years there got the highest bonus, the second highest bonus, etc. The information that I have tells me that the vast majority of associates at K&E were in the bottom two buckets of bonuses. If you have the hard stats (which I know K&E is loathe to disclose), please fill us in.

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<p>I'm surprised someone like you doesn't know the answer to this one....since you claim to be a lawyer and all. K&E has a free market system which allows you do pick the cases you want and, as such, allows you to pick cases which you will be billing many more hours then other cases. If you think associates have any problems billing 2200 or 2400 hours at K&E then you are dilusional. K&E is known for being one of the biggest sweatshops in the legal market, that's why they have different bonuses for diff hours. Most associates in the class years got bonuses that were far and away above any other biglaw bonuses, save WLRK. If you reference the link provided earlier you would see this. </p>

<p>And yes, I am in UG, but I have to wonder what you do...for it would seem that on some matters (K&E) I know what I'm talking about while you do not. </p>

<p>Are you an associate at S&C? </p>

<p>Like I said, you can see the bonus numbers I have provided. You have failed to provide any K&E bonus numbers. Hopefully the people on this board will reference the links instead of taking "the information that you have provided" as solid and based on facts (which, of course, you lack....you do know what a fact is right?)</p>

<p>EDIT: I'll even do the math</p>

<p>Kirkland: 1st year median bonus (52k), 2nd (59k), 3rd (72), 4 (80), 5 (90), 6(114), 7+ (Non equity partner)
NY Biglaw: 1st year bonus (35k), 2 (40), 3 (45), 4 (50), 5 (55), 6 (60), 7 (65), 8 (65)</p>

<p>If you are in fact an S&C associate (which I hope you are, considering your insistance that people be in the room to know what went on) then I'm sorry you're being underpaid compared to Kirkland. Add to this the fact that you have a higher COL and smaller partnership prospects and I can understand the source for your malaise...</p>

12

<p>Sally's right - K&E can only give out a range of bonuses and that is not lockstep. It is not just completely hours based either. They are known to have a formula that they use that includes hours but has some other mysterious ingredients to it. If not, there wouldn't be a range within the hours. None of this is anything new. The firms have cycled through these things before, and they'll find out again that it doesn't work. Basing a huge amount of pay on hours based bonuses was a disaster in the 20 years ago. Once associates starting billing over 3000 hours, clients started taking a look at the bills and questioning the hours; then partners had to cut the bills more and associates got in trouble for padding and it was a mess. So, they tried a combination of hours and other factors that were so subjective no one was happy. Then, big surprise, they went back to lock step bonuses by seniority. Now, as then, the associates billing more are complaining that they want to make more money than the perceived slackers, and the whole thing starts again. The thing the firms have never been able to get a handle on is that, when you ask experienced happy associates what they really like about their firms, they never lead off with money. They talk about respect and being treated well and getting good work and responsibility and feeling like their work will be rewarded with a chance for partnership. The S&C associates suggested changes like being thanked for work and not cancelling their vacations at the last minute and having phone calls returned. It is much easier to pay more than to treat people well.</p>

13

<p>The ad hominem attacks are really unnecessary, LaxAttack. Delusional? I don't think so. At least you've finally identified the source of my malaise for me -- gosh, and I was beginning to worry.</p>

<p>While I won't list enough information to completely reveal my identity here, I assure you that I am actually an attorney, that I have been an attorney for long enough to be beyond the associate stage of my career, that I have actually done a tremendous amount of on campus recruiting at top law schools for a law firm, and that when I state unequivocal facts, it is because I am certain of their truth. When I am uncertain, if I am stating an opinion or if I am basing an assumption on anecdotal evidence, I say so.</p>

14

<p>This may apply to a number of people, but I think if you aren't a lawyer, then you have no merit when you try to talk about salaries and such. Just because you did some research doesn't mean anything. It seems like on this board there are so many people who aren't even in law school, who aren't even lawyers that talk like they know everything about salaries after law school. You aren't credible.</p>

15

<p>I just wanted to take a moment to explain how an associate at a firm that bases bonuses on billable hour targets may not get the bonus that they choose to aim for at the beginning of the year.</p>

<p>On one hand, an associate may want to bill enough hours to achieve the very highest bonus available, 2400+ billable hours in the K&E example, but may fail to actually bill the requisite amount of hours. Why? Most often it would happen simply because deals die, litigation gets settled, the economy in one sector or as a whole slows, a practice area is slow (a great example is that typically when financing and acquisition work is hot, bankruptcy work is slow and vice versa) or because the firm simply doesn't have rainmakers bringing in the work. A great example that is happening right now is that M&A and private equity associates who were working crazy hours and racking up billable hours like gangbusters through the first half of the year and now suffering through a slower period. Why? I'm no expert, but my experience is that the tightening of the credit markets has led to less availability of money at reasonable interest rates that would enable private equity funds and other investors to buy up interests in companies with the necessary leverage to make the deals palatable to their respective investors. Banks seem reluctant to underwrite and then try to syndicate these bond offerings that are so typical of private equity investments right now (e.g. the recent Home Depot divestiture). In any event, and disregarding any of my debt markets analysis, many M&A and private equity associates at firms with billable hours requirements for bonuses may not hit the billable hour targets that they were eyeing just a couple of months ago. Sure, they will most likely get home earlier and perhaps get to enjoy their weekends, but for those who wanted to bill 2400+ hours, they just may not get there. Unfortunately, those M&A and private equity associates typically can't simply choose to pick up a new litigation case, a patent application or a project finance deal to fill up their hours, as there are other associates with experience and expertise in those areas available to do that work. Of course, there are exceptions, but this is one example of how an associate who wants to bill lots of hours may not be able to do so. </p>

<p>On the other hand, an associate may want to minimize his or her hours without regard to the effect those hours may have on bonuses. Unfortunately, sometimes these associates can't simply choose to head home at 6 p.m. every day, and they can't choose never to work on a weekend. In most cases, associates can get assignments at any time, whether or not they request those assignments. Yes, this applies even at K&E. No biglaw firm is going to allow an associate to sit idle while other associates are working around the clock -- at least not for very long. Yes, there are specialty areas within biglaw firms (such as trust and estates, ERISA, tax (sometimes), etc.) that tend to bill fewer hours as a whole, and I'm not talking about those associates. The reality today is that an associate who regularly bills very few hours without some excused reason why may ultimately be asked to leave at their next review (using the "We really think that this isn't the right environment for you . . . why don't you take a few months to find a position for which you are more suited . . . you have until the end of March to do so" line). </p>

<p>However, in each case, please don't misunderstand and think that the quality of one's work, one's willingness to step up and take on work, and the total number of hours billed don't contribute to one's success and partnership prospects at many biglaw firms. They do.</p>

<p>At the end of the day, that is why only firms that pay the same bonuses to everyone in a class, regardless of hours billed, are generally considered to pay lockstep bonuses.</p>

16

<p>Why so much hostility over what OTHER people's salaries are?</p>

17

<p>See sally, the thing I don't get is this. You say one thing about K&E associate salaries, and then proclaim that it is "factual and correct." However at the same time you admit you don't work for K&E. However a K&E associate I do know, and talk to on a regular basis, says that those in 18-20, 20-22, 22-24, 24+ do get specified bonuses.....now, do I believe you who, as admitted, has never worked at K&E, or do I believe somebody who has currently worked for K&E for 3 years and as such has received two K&E bonuses? Call me crazy but something tells me the K&E associate knows more about the bonuses at K&E then you do. Fair assumption?</p>

18

<p>LaxAttack--I think the problem is that you and Sally have different definitions of lockstep. To you, lockstep means that everyone who works a certain number of hours gets a certain bonus. To Sally, lockstep means that everyone in an associate class get the same bonus. That means that a person who bills 1,800 gets the same as someone who bills 2,600 if they are in the same class. In this system, there are no gradations based on hours. The definition of lockstep as I have always understood it refers to the system Sally describes. Sally has not disagreed with the facts you have presented about K&E granting automatic bonuses for people who work specified hours. She has merely stated that what you have described is not lockstep according to the commonly used definition. I would call what you describe at K&E automatic bonuses, not lockstep bonuses.</p>

19

<p>Lax -- you seem so concerned with proving you know what you are saying that you seem not to be reading what sally is saying carefully -- you seem to keep arguing over issues that have not been raised. she has never said that K&E does not give bonuses based on hours worked -- she has raised questions as to how easy it is for an associate to control what their total hours are for a year and she has also questioned what percentage of K&E associates get the highest bonuses -- neither are issues that you have addressed. </p>

<p>one of the things you will have to learn if you want to be a successful lawyer is to hear what it is the other side is saying so that you can respond accordingly -- and actually address the issues raised thoughtfully and rationally.</p>

<p>you should also come to appreciate how to set whatever anyone tells you into a context. if someone who is a third year associate at a given firm tells you something -- that's fine information about what it is like to be that associate at that firm. but you have to learn not to try to extrapolate too much from what one person has told you to the point where you ignore other valuable information. </p>

<p>there is valuable information being offered to you and others here. if you choose to ignore it because you think you know more based on what other people have told you, rather than trying to connect the dots and see that you can get valuable information from various sources, it is your loss. people who have been reading on this forum for any length of time will have no trouble deciding who the credible posters on.</p>

20

<p>The following are some exerpts from an article in the October 1st American Lawyer magazine. The article describes how the slowdown in private equity and structured finance will affect lawyers. My prediction would be that there will be some unhappy lawyers in these areas who worked some crazy hours during the first half of the year, but who won't receive a bonus at firms that tie bonuses to billable hour targets. </p>

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Brother, Can You Spare a Tranche?

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When three private equity groups arranged to buy HD Supply, Inc., early this past summer, the deal looked like simply another in a long chain of blockbusters. Then subprime loan defaults shot up, banks tightened their lending policies, and the credit markets ran dry. With the real estate market already in a tumble, the long-term prospects of HD Supply, a division of The Home Depot, Inc., that caters to building contractors, were uncertain. The deal, like dozens of others signed before the credit market shut down, was stuck in limbo. For lawyers at Debevoise & Plimpton who represented the consortium of buyers, the work they would have done after the close-and time they would have billed-was suddenly in doubt.

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Even scarier for Debevoise, and for all firms with big private equity practices, was the fact that no new deals were popping up to take the place of those that were stuck. Those fears are shared by lawyers who work on mortgage-backed securities, a market that has completely shut down.

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The fears are well justified for both groups, and for any lawyer whose business is linked to the availability of easy credit.

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On the private equity side, dealmaking volume for the first half of 2007 was twice what it had been over the same period the year before. Then August came, and the markets took a long vacation. Announced private equity deals for the month totaled just $5 billion, down from $45 billion the year before.

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Of the two practice areas, the structured finance lawyers are in a tougher spot. "These [practices] are incredibly profitable for law firms because they only require one or two partners on top, and a dozen or more attorneys underneath just churning these things out," says a partner at another Am Law 100 firm who does securitizations.

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But when the pipe is empty, these practices suffer for the same reason that they are profitable: It takes lots of bodies to roll these offerings out the door, and that leaves lots of lawyers with potentially little to do in a drought.

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. . . some people are in for a tough year. According to an internal memo obtained by the blog Above the Law, Kilpatrick Stockton announced raises for all associates-all, that is, except those who work in capital markets.

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If structured finance and private equity lawyers are struggling to meet their billable hours targets, though, litigators might be giving up their weekends for the next few months. The Securities and Exchange Commission has launched at least a dozen investigations around the subprime crisis, and filed suit against one fund manager, Sentinel Management Group Inc., which is accused of lying to its clients about its investments. Investors have filed lawsuits against the companies that have collapsed in the wake of the subprime crisis, including the Bear Stearns hedge funds and mortgage lenders.

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During the slowdown, deal lawyers have been reduced to economic forecasting and speculation. For example, King & Spalding private equity partner Raymond Baltz, Jr., says that for activity to pick up again, everyone involved must adjust their expectations. Private equity investors have to lower their target rates of return, sellers have to accept lower prices, and banks can't limit their lending too much.

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