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Law firms have long found that bonuses are a good way to reward rainmakers and keep them safe from competitors, and Hunton & Williams is the latest case in point. In May the firm’s executive committee began discussing plans to increase the pool of distributable profits set aside for bonuses from 2 percent to somewhere between 8 percent and 10 percent. Hunton Chairman Thurston Moore says the change is designed to compensate younger partners for their productivity. The younger partners don’t have as large a share of ownership as more senior partners, but in a given year they may bring in as much business. Says Moore, “We want to reward partners who are knocking the cover off the ball.” Moore says that over the past 20 years, legal practices have gotten more portable, and partners are succeeding at a younger age. “The way we compensate people has got to change with the times,” he says. John Woods, who became a partner at Hunton three years ago, welcomes the boost. He says firm management needs a mechanism for compensating younger partners without renouncing its commitment to the institution. “It’s a difficult balance,” he adds, “but the bonus mechanism seems an effective means to try to bridge any gap between ownership compensation and what the theoretical market value for a young partner might be.” Moore says Hunton & Williams plans to vote on the proposed bonus increase this summer and phase it in over the next two to three years. Elsewhere, firms are using bonus pools to keep partners from getting a larger slice of profits than they deserve. Blaine Prescott, a consultant at Hildebrandt International, says that in the past three years many firms have suffered from point inflation. When profits go up quickly and partners retain their same relative share, some may receive “far in excess of what they are worth,” Prescott says. By siphoning money from profits into a bonus pool, firms can ensure that extra cash goes to those who merit it. For the past 15 years bonus pools have been a standard feature at many firms, and the average amount set aside has now risen to 8 percent to 10 percent. Latham & Watkins, one of the bonus-pool pioneers, has traditionally set aside 15 percent of its profits. Orrick, Herrington & Sutcliffe has a slightly different bonus system. The firm’s executive committee typically sets aside 10 percent of profits every year. Firm Chairman Ralph Baxter Jr. says that generally, about half of the sum goes to bonuses and the remainder is distributed to partners based on their share of ownership. And according to law firm consultant Peter Zeughauser, one of the nation’s top 100 firms now designates 50 percent of its profits for bonuses. (He declined to identify the firm.) Given the demand for talented lawyers, Zeughauser expects that in the future bonuses will become a more significant part of a partner’s income — and a large base compensation will go to a small number of equity partners. He predicts that in the next couple of decades, thanks to the bonuses, “there will be 20,000-lawyer firms with partners making $20 to 30 million, in line with investment bankers.” They’ll be the legal industry’s version of Tom Hanks and Will Smith, who earn $25 million per movie. But perhaps not quite so glamorous.
Brenda Sandburg is a reporter with The American Lawyer , the ALM publication in which this article first appeared.

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