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After weeks of on-campus and fly-back interviews, when details of multiple firms in multiple cities are lost in a sea of polished marketing, sweaty handshakes, and smiling faces, many law students choose the firm where they will spend their summer based on a gut feeling � some amorphous instinct about their expected future workplace happiness. Like Santiago the shepherd in Paolo Coelho’s “The Alchemist,” these students wander the desert in search of their personal treasure, guided by the faith that their ambition will not lead them astray and the poetic principle that “when you want something, all the universe conspires in helping you to achieve it” otherwise known to Santiago as “the principle of favorability, or beginners luck.” Other students, unwilling to be shepherded by desire and luck alone, base their decisions on statistical information regarding salaries, demographics, and prestige mined from the National Association for Law Placement (NALP) directory and the Am Law 100. But although these numbers can be incredibly useful as a baseline for further inquiry, they can be misleading and easily manipulated. For example, a firm with a high attorney attrition rate may be a sign of a pending implosion, but could just as easily mean that the firm is considered a fertile ground for recruiting highly trained and capable attorneys due to the early responsibility the firm provides its associates. As another example, a firm can drastically boost its reported profits per partner in any given year by either making fewer partners or by retiring numerous “underperforming” partners just before reporting year-end financial results. A decision based solely on such numerical data can lead to choices just as random as any based on instinct because statistics can be an appealing illusion that is too often used to mask facts and substitute for critical thinking. As Nassim Taleb teaches in “Fooled by Randomness,” knowing an outcome is of little value unless one also assesses the path taken to get there. Once at their chosen firm, the summer is the perfect opportunity for recruits to dig deeper into the aspects of the firm that piqued their instincts and investigate the basis for the firm’s reported numbers. Unfortunately, despite months of short-term projects and long-term lunches, few summer associates gain more than general, if any, knowledge about how the firm is run, how the partners and associates are compensated, what criteria the firm uses to select partners, or any other factors that will dictate their happiness and success in the future. I, for one, didn’t take more than a passing interest in law firm management until two of the three places where I had been a summer associate later appeared in the annals of once high-flying firms that crumbled under poor leadership. The summer is very useful for establishing personal relationships with future colleagues and getting a general sense of life at the firm, but summer associates must also take this valuable opportunity to dig beneath the firm’s glossy surface and learn how it really works as a business. Two aspects of the business that most recruits are savvy enough to consider, but do not take the time to fully comprehend, are the firm’s compensation policy and its partnership track. The firm’s compensation policy, particularly its bonus structure for associates, is extremely important, but not in the way most recruits think. At the over $160,000 starting salary for today’s large law firms, a few thousands dollars difference in salary between offers from competing firms will have little impact on a young associate’s financial wherewithal. But what the firm expects the associate to do to earn that salary can speak volumes about the firm’s culture and values. For example, some firms use a differential compensation system, where associates in the same class earn may earn vastly different levels of income depending on any number of criteria, such as billable hours, perceived work quality, or whether an influential partner on the compensation committee goes to bat for them. By definition, differential compensation means that associates must compete with one another for money that usually is doled out at year-end in the form of a discretionary bonus, which can vary by tens of thousands of dollars for associates in the same class. Many discretionary bonus systems are annually beleaguered by secrecy, jealousy, hypocrisy and plain old politics come bonus time. In contrast, a lockstep bonus structure, where all attorneys in each class receive the same bonus so long as they meet minimum billable hours requirements, favors a more collegial environment. In a lockstep scheme, associates are not induced to compete with each other for money or for projects with the most politically connected partners. Instead, the focus remains on quality work. Racking up billable hours solely for bonus points is disfavored. Although a lockstep system prevents grindstone associates from earning enormous bonuses at the expense of their less busy colleagues, if a firm goes a further step and ties its lockstep bonus structure to a system of matching the average highest salaries, after bonus, in the region, associates can get the best of both worlds. In addition, a firm that tightly controls its hiring practices can, hopefully, stop any would-be free-riders at the gate. The number of billable hours tied to a discretionary or lockstep bonus also reflects how much a firm values both providing associates with a good work-life balance and providing client’s with quality work product. A bonus structure tied principally to billable hours emphasizes quantity over quality. Recruits should compare the firm’s minimum billable hours to the hours necessary to reach each tier of bonus and determine whether both numbers are in a comfortable range for a balanced lifestyle. If either figure is beyond that, the firm may be signaling its preference for higher billable hours over family life. In assessing whether they are likely to “go for the bonus” each year, recruits should also keep in mind that their average rate of return for their efforts usually decreases sharply for every hour worked over the minimum. For example, say the firm has a $160,000 base salary for a 2000 billable hour minimum with a $5,000 bonus at 2100 hours and a $10,000 bonus at 2200. The first 2000 hours are paid at a rate of $160,000/2000 = $80/hour whereas the marginal hours are paid at $5,000/100 = just $50/hour. In the same vein, those assessing firms based on the well-publicized base salaries must take care to compare apples to apples. Earning $160,000 at a minimal billable hour requirement of 1900 is vastly different in terms of quality of life from earning that same salary for 2400 hours, as reflected in the tremendous difference in hourly wage ($84 vs. $67). In comparing the partnership track at competing firms, most recruits simply look at the length of the track, that is, the number of years before the firm will consider an associate eligible for partnership. Although this is a decent starting point for the analysis, there is much more to the game. At many firms, the “partner” title can be assigned to equity and non-equity partners alike. An equity partner gets a partnership draw, basically a share of the firm’s net revenue, whereas a non-equity partner has a cute title, but is salaried like an associate and may not even be eligible to participate in firm management or high-level decision making. Even firms with all equity partners may have a tiered partnership structure such that those who make “partner” after 5 years may not be considered “full partners” until after 10 or more. In some firms, a new partner may even receive drastically less income than his or her most recent year as a senior associate. This is particularly a concern at “eat what you kill” firms where each partner’s income is based on revenue from the clients she or he brought to the firm, and new partners are unlikely to have a significant book of business. Recruits should explore whether the firm sets limits on the ratio between the points assigned to the highest and lowest revenue partners. How a firm’s partners choose to compensate associates and each other, and how they choose to run the firm has implications for both the firm’s longevity and its social climate. Over the summer, try to get a clear picture of how your firm is managed by asking pointed questions of multiple people, at multiple levels. What is the firm’s management structure � are decisions made by a committee or a despot? How transparent are the firm’s finances to the associates? Does the firm carry debt, and if so how much? Does the firm borrow against its accounts receivable? Who are the firm’s alumni and what sorts of things have they gone on to achieve? Getting the answers to these and other questions should be on every associate’s agenda. Ellisen Turner is an associate at the Los Angeles office of Irell & Manella LLP where his practice includes intellectual property litigation and patent prosecution. You may reach him at [email protected]

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