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Among the many bleak facts of large law firm life recounted in the now-famous Oct. 15 Clifford Chance associates’ memo, the bleakest for managing partners throughout the city may be that boom-year bonuses have not only survived the end of the boom, but have become an entrenched expectation and the overwhelming focus of associate unhappiness. What Clifford Chance associates and other media have referred to as a requirement that associates bill 2,200 client hours and 220 other hours might be more accurately described as a condition of the firm’s bonus system. The 2,420 hours, cited in the memo as by far the primary source of associate discontent, were expected of associates who hoped to receive a full year-end bonus last year. The condition takes on the strength of a requirement only if prevailing expectations are that all associates will receive a bonus. Of course, such expectations abound. “There is no question that associates now view bonuses as a part of their compensation,” said one managing partner of a major New York firm. “There is an expectation that it won’t be nothing.” Introduced in the late 1990s to forestall associate departures to dot-coms and other tech-driven enterprises, year-end bonuses still constitute a relatively small proportion of associate compensation, at least compared to investment bankers, who receive most of their compensation in the form of bonuses. Last year, a first-year associate at a top New York firm could expect to earn a base salary of $125,000 and a bonus of $20,000. But associate bonuses have taken on new significance in recent years. On one hand, they have emerged as perhaps the primary means by which associates and law students rank the nation’s major firms. On the other, bonuses have simultaneously been perceived by associates as the law firms’ means of ranking them, inducing anxiety in a market in which several major firms have resorted to associate layoffs. The weak economy, which has particularly slowed activity at law firms’ corporate departments, has had an impact on bonuses: Last year’s were half the size of those paid in 2000, when bonuses for associates started at $40,000 for first-years. With no end in sight to the current slump, many lawyers, both partners and associates, have speculated that bonuses could be smaller still this year, or even non-existent. But the Clifford Chance associates memo, with its sharply worded criticisms of firm policies and its depiction of associates slaving away for unappreciative partners, has circulated widely at big firms just as partners are beginning to discuss the highly sensitive bonus issue. According to several managing partners of large New York firms, all of whom asked to remain unnamed for fear of backlash at the firms, a “wait-and-see” attitude currently predominates among partners discussing the issue. One managing partner said he expected firms to pay a bonus because several incoming first-years had been guaranteed one as a condition of hiring. Bonuses across the board would be necessary, he said, to maintain seniority in associate compensation. The managing partner nonetheless said a final decision on bonuses at his firm is some weeks away, and that his firm would watch what rival firms did. The managing partner of another firm, a bonus leader in years past, also said his firm might wait this year to see what other firms do. “I’m not sure anyone really wants to be the leader this year,” he said. The annual associate bonus wars delineate leaders and laggards among firms, which is one reason they have continued to animate the thoughts of status-conscious lawyers and firms. The same managing partner who said firms may shy away from taking the lead on bonuses said there is some speculation that Weil, Gotshal & Manges, with its counter-cyclical bankruptcy practice, might try to raise its profile with a higher bonus this year. The Clifford Chance memo, drafted by six associates and based on anonymous surveys of associates firmwide, states that associates find a 2,420-hour requirement to receive a bonus particularly objectionable because of a perception that “[Clifford Chance's] peer firms pay a full bonus to at least the vast majority of associates, regardless of billable hours.” A firm spokesman said the 2,420-hour mark did not represent official firm policy but is intended as a guideline to the firm’s bonus system, and other factors were considered in meting out bonuses. The controversy over these hours highlights the fact that, though many firms have seen the payment of bonuses as a means of positioning themselves among New York’s top firms, a dichotomy exists between firms that pay associates bonuses strictly according to class year, and those like Clifford Chance that have tied the payment of bonuses to billable hours or “merit,” which many associates regard as a euphemism for productivity. This divide is exacerbated in associates’ minds because the firms paying bonuses regardless of billable hours also happen to be those considered most prestigious in New York. Cravath, Swaine & Moore; Sullivan & Cromwell; Davis Polk & Wardwell and Simpson Thacher & Bartlett are firms that attach no billing requirement to associate bonuses. Clifford Chance, the largest law firm in the world with 3,000 lawyers and the only member of London’s Magic Circle of top law firms to also rank among the largest firms in New York, has made no secret of its desire to be considered in the same league with New York’s most elite firms. The associate who helped draft the Clifford Chance memo said the firm’s oft-stated ambitions no doubt inflamed associates’ opinions on the firm’s performance-based bonus structure. Indeed, one associate cited in the memo accused the firm of announcing a “Cravath bonus” but paying the full bonus only to “what seems like a small percentage of associates.” A perception of poorer financial resources, or at least stinginess, often attaches to firms that place conditions on bonuses. Another associate cited in the Clifford Chance memo taunted the firm’s partners by insisting that they “admit” the firm was unable to afford to pay what other firms were paying. The managing partner whose firm has led bonuses in the past said many firms were trying to control costs by placing tough conditions on the payment of bonuses. “The whole cost structure has gotten out of whack in the past few years,” he said, noting that first-year compensation in New York went from around $90,000 in 1997 to a high of $165,000 in 2000, when bonuses hit $40,000. Though Clifford Chance has attracted enormous media attention, particularly for one associate’s comment that the bonus requirement encouraged “padding” of billable hours, the firm has hardly been alone in basing bonus awards on hours. Sidley Austin Brown & Wood was straightforward in announcing an hours-based bonus last year, producing a complicated chart detailing different bonus gradations. Under Sidley Austin’s scheme, first-year associates could earn $25,500 for billing at least 2,400 hours. White & Case; Mayer, Brown, Rowe & Maw; Kaye Scholer and Chadbourne & Parke are other firms that have instituted explicit hour requirements for the awarding of bonuses. Last year, Weil Gotshal and Dewey Ballantine also stated that their bonuses were based on merit, though they did not disclose specific billing requirements. The managing partner of one firm that has paid bonuses to associates without regard to hours said his firm felt such requirements were unfair to associates because the number of hours a junior lawyer could bill were more a function of the economy and the assignment system than a measure of merit. The partner nonetheless said his firm does view productivity over a number of years as one of the most important determinants of an associate’s future at the firm, particularly the associate’s suitability for partnership. Moreover, the partner said that his firm does make a point of not paying bonuses to a handful of associates considered underperformers. The non-payment is intended to send a signal, the partner said, though he stressed that those associates also received other, more direct communications about their situations, generally culminating in their being asked to leave the firm. JOB SECURITY But the very idea that many firms use bonuses as a means of communicating partners’ assessments of associates’ performance fills associates with dread, particularly in the current economic environment. With dealmaking down considerably, corporate associates find themselves hard-pressed to bill hours, a fact cited in the Clifford Chance memo. Though a firm spokesman said the only consequence of falling short of 2,420 hours was not receiving a full bonus, one Clifford Chance associate said anxiety about job security was the primary reason many associates had such strong feelings about the firm’s bonus policy and the performance evaluation implicit in payment of bonuses. With the firm’s review process largely regarded as ineffectual, the associate said, Clifford Chance associates regarded bonuses or the lack thereof as perhaps the only communication they get from partners about their futures at the firm. In some cases, those futures seemed to have been abruptly decided, he said. “When people leave here, they just disappear,” the associate said. “There’s no departure memo saying, ‘I’m going to the U.S. Attorney’s Office or someplace.’ They’re just gone.”

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