Associates beginning their second year in January will receive a $7,500 bonus, down from $17,500 last year, according to a memorandum obtained by the New York Law Journal. Senior associates will earn $30,000, the same as in 2008.
Cravath declined to comment beyond the memo. Legal observers said there is little surprise though that bonuses are down in the current economy, which has seen layoffs at law firms throughout the city and a drop in demand from clients for legal services.
"Recognize that there's been a major shift based on the economic situation," said Sheri Michaels, leader of the associate practice at recruiting firm Major, Lindsey & Africa.
The head of one major New York law firm, who requested anonymity, said he was "quite honestly surprised that a major New York firm was paying bonuses this year."
The partner said he would expect a negative reaction from clients on "any bonuses being paid in the current economy." He said he expected that a decision to pay bonuses "would have been deferred for some number of months."
The Cravath announcement kicks off the bonus season among New York law firms. Cravath is typically seen as a market leader, a small group that also includes Sullivan & Cromwell; Skadden, Arps, Slate, Meagher & Flom; and Simpson Thacher & Bartlett.
Those firms either declined comment or did not respond to requests for comment on their bonus plans.
"Everybody has been waiting for the first shoe to drop," said the chair of another large New York firm, who also requested anonymity. "I think everybody has been assuming bonuses would not match last year. I think there's still an open question whether the firms that have had a really good year ... will want to differentiate themselves, but I personally doubt it."
The Cravath bonuses are down substantially from their high point in 2007, when the firm awarded regular bonuses of $35,000 to junior associates and up to $60,000 for senior classes, in addition to special bonuses of $10,000 for junior lawyers to $50,000 for more senior lawyers. Put in context, an associate in the class of 2006 could earn $45,000 in bonuses in 2007. This year, that same associate could earn $15,000.
"The boom year is not a year people should hold out as a standard. That's an anomaly," said Karin Greene, a recruiter at Greene-Levin-Snyder in Manhattan. "The world has changed significantly."
Last year, Skadden kicked off the bonus season in mid-November, paying no special bonus but keeping the regular bonus of $35,000 to $60,000 for junior and senior associates, respectively. Cravath announced a day later with bonuses that were half the amount Skadden announced. Other firms soon followed Cravath.
In its memo last year, Evan Chesler, presiding partner at Cravath, warned that "associates should be prepared for the likelihood that the economy and the Firm's financial performance next year will not show a significant improvement over this year." He warned that associates "may receive significantly reduced or no year-end bonuses next year."
In 2008, Cravath saw gross revenue drop 13 percent to $532.5 million. Profits per partner fell 24 percent to $2.5 million, according to The American Lawyer, an affiliate publication.
Cravath did not announce layoffs this year like other firms nationally but it has faced overstaffing. The firm reported 605 lawyers in September 2009 compared with 554 at the same time last year, according to data compiled by The National Law Journal, another affiliate.
In June, Cravath offered incoming associates $80,000 to voluntarily delay their start dates one year. Rowan Wilson, a Cravath hiring partner, said in an interview last month that 48 accepted the firm's offer, while roughly 90 attorneys were starting this year.
Cravath is not giving a bonus to associates who joined the firm this year. New associates earn $160,000 a year.