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In most professions, employees were happy to have made it through yet another difficult economic year with their jobs intact. Big bonuses were something handed out two years ago, not in 2002. But large-law-firm associates live in a different world. With billable hours down in most transactional practice areas, the number of associates around the country receiving bonuses is down. Yet, some firms are still offering generous bonuses to a good number of associates who already earn six-figure salaries. The method for determining how much the bonuses will be and who gets them varies from firm to firm and city to city. At large New York firms, associate bonuses are determined by the firm’s overall profitability, and firms appear to offer the same bonus packages as peer firms. New York associates received lower year-end bonuses in 2002 than they did in 2001, according to The New York Law Journal. But don’t feel too bad for them. One group of firms has agreed to pay first-years $17,500 and senior associates $25,000 or more. Another group of “less charitable” firms has rewarded first-years with $15,000 bonuses. In Washington, D.C., Legal Times reported that Arnold & Porter bucked the trend of most firms there by rewarding all 260 D.C. associates with bonuses of $5,500 to $16,500, regardless of hours billed or performance evaluations. Other large D.C. firms typically awarded bonuses to less than half of their associates, usually based on billable hours with some other merit-based considerations. In San Francisco, The Recorder reported that one of that city’s largest firms, Wilson Sonsini Goodrich & Rosati, has for the first time imposed a minimum billable-hour requirement on associates if they want to receive bonuses, which range from $2,500 to $30,000. With all of that in mind, The Legal Intelligencer decided to ask Philadelphia firms what methodology they use, how much money they pay and how many associates will receive bonuses. But unlike in many other cities, the firms did not want to divulge that information, and many of those that did cooperate did so only after The Legal Intelligencer obtained information from the firms’ associates. What we found was that in Philadelphia, bonuses are by and large determined by reaching a billable-hour threshold, though some firms also offer discretionary merit bonuses, profit sharing and a percentage of business that an associate originates. But unlike in New York, where overall firm profitability is the chief factor for all firms in determining how much money is awarded, each Philadelphia firm has its own unique methodology. Frank D’Amore, managing director of the legal recruiting firm Major Hagen & Africa, said the standard bonus at most large Philadelphia firms is usually based on a billable-hour requirement of 1,900 to 2,100 hours, though some firms give credit for non-billable activities such as pro bono and recruiting. Those bonuses this year range from $1,000 to $5,000, but if an associate’s billables are extraordinarily high, he or she can receive even more. Certain firms that are having a good year are offering discretionary bonuses to associates who have either performed well individually or are part of a high-performing practice area. In past years, D’Amore said, these bonuses were more commonplace and were in the range of $20,000 to $40,000. This year, the number of associates in town receiving discretionary bonuses is down, and the dollar amount awarded to the lucky recipients is significantly down, D’Amore said. Some associates told The Legal Intelligencer that they believe non-discretionary bonuses should not be based solely on billables and that firm managers need to factor in quality of work and non-billable activities such as pro bono and recruiting. “I understand that [billable work] is the most objective measurement,” one senior associate said. “But when people are asked to do things on behalf of the firm, I think those things should be recognized. To me, a bonus is supposed to reflect going beyond what job requirements are. You can bill a lot of hours and not be efficient, and you can also write a lot of things in. Basing it strictly on hours almost encourages people not to be honest or efficient. “At the same time, I understand that it’s more subjective when you look at other things. And we are all getting big salaries.” Blank Rome managing partner Fred Blume said that firm management has a good handle on associate work quality, and he does not believe that the hours being recorded as billables are unreal or inaccurate. “We will look at extraordinary things such as dedicating 300 hours to recruiting and factor that in,” Blume said. “But if you write an article, help with recruiting, sit on a board, participate in the bar association, that’s just investing in your own future, and we all do that. It’s no different than partners who do the same thing.” Tom Clay, a law firm consultant at Altman Weil, said that after speaking with at least eight Philadelphia managing partners, he believes most base their bonuses on billable hours and to a lesser extent, fee receipts. And he said that’s the most objective way to judge whether an associate should receive a bonus. “Most firms are going to start associates at $100,000,” Clay said. “Where else can you get that kind of money to start. If you want to get ahead and become a partner in a law firm, you do what it takes. And that requires making choices and sacrifices. One of the real failures of law firms is that they are not brutally honest with associates about what it takes to reach partner level. You still have choices. You can bill 1,800 hours and still make a nice living. Or you can bill 2,100 hours and do these other activities and not see your friends and family as much as you’d like.” Clay said that for most Philadelphia firms, the bonus structure in New York should be irrelevant to what they pay. He said he prefers the Philadelphia model because it rewards individuals and leaves less room for tension because harder-working associates in New York tend to receive the same non-discretionary bonus as those billing fewer hours and at a lower rate. “If only 45 percent of associates receive a bonus, it doesn’t mean that the firm had a bad year,” Clay said. “Philadelphia firms that have budget-beating years give bonuses to those who work the hardest. And billables is the best way to determine that. If you start looking at other things, that leads to problems. If you have someone billing 1,750 hours, another person billing 2,100 hours is going to be upset if the two receive the same bonus.” What follows is a list of bonus programs at most large firms in Philadelphia. This list is far from a scientific breakdown due to the fact that some firms offered more cooperation than others — meaning that some firm listings have information provided by only firm management, some with information provided by associates and others with information provided by both. In all instances when The Legal Intelligencer spoke with associates, the firms had an opportunity to respond. Ballard Spahr management declined to discuss any aspect of its bonus program. And young associates with whom we talked did not know much about the bonus program at the firm, except that they were not eligible. Bonuses, which appear in the form of profit sharing, usually kick in around the fourth year. BLANK ROME Both the firm’s managing partner and its associates said that if associates at Blank Rome hit the 2,000 billable level, they should receive a standard $5,000 bonus. The firm does credit associates for up to 50 hours of pro bono work but otherwise determines who gets bonuses based almost entirely on billables. Discretionary bonuses are also awarded. Blume said that the formula for discretionary bonuses is a combination of billable hours multiplied by billing rates and then a percentage of that number. Blume said that department heads have the discretion to set a high or low percentage for individual associate or nix bonuses in individual cases. Blank Rome associates said discretionary bonuses are rare and usually just a token sum. If an associate brings in business, he or she does receive 10 percent of that business, Blume said, noting that an associate once brought in $600,000 worth of business. Buchanan used to dish out bonuses based solely on billable hours as well as offer discretionary bonuses. But according to Philadelphia office co-managing partner Steve Braverman, the firm found that system produced some anomalous results, where junior associates grinding out hours were receiving higher bonuses than more skilled senior associates just because of the type of work they handled. So the firm recently switched to a bonus program where one single bonus is awarded based on a variety of factors, including merit, pro bono activities, hours worked, and other contributions such as taking on significant responsibilities in recruiting, practice development and other activities. Braverman said that bonuses in Philadelphia ranged from $2,500 to $55,000 and that more than 47 percent of the eligible associates in Buchanan’s Philadelphia office received them. Braverman said that billable hours are still a factor, as associates must reach a 1,950-hour threshold to be eligible, though pro bono and performing administrative tasks for the firm count against that number. Managing partner Tad Decker said that the firm switched to a performance-based bonus program three years ago, where associates must be in the 2,000-billable-hour ballpark but are also rewarded for work production, business development and “good citizen” functions such as recruiting, marketing and pro bono work. Decker said that for 2001, roughly 70 percent of associates received bonuses. The firm has not yet made decisions about 2002 bonuses, but he estimated that 60 percent of associates will receive them. Decker said bonuses will range from “a couple thousand dollars to almost $50,000.” Dechert introduced a new bonus system two years ago, when the firm raised its first-year associate salaries from $75,000 to $105,000. Under the old bonus system, first- and second-years received a $5,000 bonus, third-years a $7,500 bonus, fourth-years a $10,000 bonus, and fifth- and sixth-years a $12,500 bonus. Seventh- and eighth-years’ bonuses were determined on an individual basis. Those bonuses were and still are contingent on billing 1,950 hours, though work quality, administrative participation and pro bono are all factored into the equation, according to Dechert chairman Barton Winokur. He said the dollar amount of the bonuses has increased since the new system was implemented. Winokur said that there is also a discretionary bonus program under which one Philadelphia associate received $150,000 and many others received $35,000 to $45,000. He said the firm was “a little more generous” in 2002 than it was in 2001, because it had a strong year. As at most other firms, Drinker Biddle associates said their bonuses are based on meeting a billable-hour threshold. The difference is that, save for Morgan Lewis and Dechert, Drinker Biddle offers heftier bonuses. The understanding of Drinker Biddle associates with whom we talked is that first-years were eligible for a $5,000 bonus if they hit 1,950 billables, while second- and third-years could net $7,500 for billing 1,900 hours and $15,000 for billing 2,000 hours. Jack Michel, chairman of the firm’s business and finance department, added that bonus numbers increase as associates gain more experience. Michel said the firm does offer billable-hour credit for pro bono work, discretionary merit bonuses and business-development bonuses. Drinker Biddle pays out bonuses at the completion of the financial year on Jan. 31. This is one of the most clear bonus set-ups. If you meet a minimum 1,950 billable-hour requirement, then you are eligible for a $5,000 minimum bonus, which can escalate to as much as $30,000 for more experienced associates, according to Duane Morris chairman Sheldon Bonovitz. Though the firm doesn’t guarantee a bonus, associates said that if you meet the billable requirement, you should get something. How much you do get is discretionary and determined by the department head, who bases his or her decisions on hours, work product and other contributions to the firm. Fox Rothschild’s fiscal year does not end until March 31, so no decisions have been made about bonuses for 2002. But firm managing partner Abraham Reich said that he does not expect much change in the program. Associates at the firm said you need to bill 1,800 hours to become eligible and then you can make more money for billing more hours. For instance, last year associates received $2,500 for billing 1,900 hours, $5,000 for billing 2,000 hours, all the way up to $12,500 for billing 2,400 hours. Reich and Fox Rothschild associates said that the firm also offers bonuses for fee origination (10 percent of fees collected) and discretionary merit bonuses. While it has a small Philadelphia office, Miami-based Greenberg Traurig said it gave out associate bonuses in December that ranged from $17,500 to $50,000. Philadelphia office managing partner Michael Lehr said that the bonus program is discretionary in nature and factors in billable hours, work quality, seniority, pro bono and participation in firm administration activities. Hangley Aronchick managing partner David Pudlin said that the firm gave all associates the same bonus amount at year’s end, except for the associates who started in the fall — they got one-half the amount. Hangley Aronchick uses the New York bonus model, as all associates receive the same amount, which is based on overall firm profitability. Pudlin declined to provide any dollar amount but said the number is up from last year. MONTGOMERY MCCRACKEN WALKER & RHOADS Montgomery McCracken associates said the firm has a billable threshold of just over 2,000 hours to receive a guaranteed bonus. Firm vice chairman Steve Madva said that there are also bonus opportunities based on fee receipts and merit. The base bonus number is $3,000 to $5,000, but Madva said that number can escalate to more than $20,000. There are incremental steps of achievement in which associates can receive bonuses based on qualitative factors such as business generation, work product, pro bono (hour credit is awarded), and participation in recruiting and other firm administrative functions. Two years ago, Morgan Lewis management came up with a four-level system for bonuses based on merit and experience that includes several variables. The first level comprises first-year associates; the second level includes second- and third-years and a few high-achieving first-years; the third level consists mainly of fourth- and fifth-years, with some high-achieving second- and third-years; and the fourth level includes associates in their sixth year and above, with a few less-experienced, high-achieving associates. The billable-hour requirement for bonus eligibility was lowered in 2002 from 2,000 to 1,900, but that relaxes a bit if circumstances prevent achieving the 1,900-hour threshold, according to one associate. For 2003, associates said that the firm has set the threshold at 1,975 billable hours. One associate said first-year bonuses start at more than $15,000 and that the firm gives full credit for pro bono work and certain other non-billable activities such as recruitment assistance. There are also discretionary bonuses if you are performing at an outstanding level. Hours, work quality and client development are the chief factors with that bonus. Associates said they were told that bonuses would not decrease from last year’s numbers. Morgan Lewis Philadelphia office managing partner Howard Meyers said that he believes the firm’s bonus system allows management to reward associates based on performance rather than the number of years they have been out of law school. In 2001, the firm cut its bonus pool from $1 million to $300,000, which effectively eliminated the automatic $5,000 bonus for reaching 1,940 billable hours, according to Pepper Hamilton associates. Last year, associates said, only those who exceeded expectations got a bonus, and those bonuses did not reach the $5,000 level. Translation: Most associates did not receive bonuses. There is no word on what the firm is dishing out this year, but associates said they are not overly optimistic about the number of people receiving bonuses or the amount awarded to those chosen. Pepper Hamilton management would only say that the bonus pool was consistent with last year and that it was performance-based and not guaranteed. REED SMITH Reed Smith recently paid its fiscal year 2002 (which ended this past Sept. 30) “associate production bonuses,” where associates either qualified for a Tier I bonus ($7,500) if they billed at least 2,050 hours and worked at least 2,350 hours or a Tier II bonus ($15,000) if they billed at least 2,200 hours and worked at least 2,500 hours. In Philadelphia, five associates qualified for a Tier I bonus and five qualified for a Tier II bonus, according to Reed Smith management. In addition, Reed Smith will pay 2002 “associate individual performance bonuses” by Jan. 31. Bonus amounts are discretionary and firm management said they are awarded for “exceptional legal work, extraordinary personal investment, and significant practice development and successes.” Reed Smith also pays 2002 “associate profit-sharing bonuses” in April. These bonuses can be as high as $7,500 to each qualifying (based on billable thresholds similar to the ones above) full-time associate and are based on the overall profitability of the firm. First-years are not eligible. Lastly, Reed Smith offers associate business-origination bonuses, also distributed on Jan. 31. Bonus amounts have not yet been calculated, but associates are eligible to receive 5 percent of fees collected up to $25,000. The fees collected must exceed $100,000. Managing partner Steve Aichele said that the firm offers both merit-based bonuses and profit-sharing opportunities. The merit bonus is based on work quality, non-billable assistance to the firm and billable hours. While the firm sets a 1,850 billable-hour standard, Aichele said associates can receive merit bonuses without reaching that level. He said those bonuses range from “low four-figure amounts to five figures.” Schnader Harrison management would only say that the firm’s bonus program was based on both billable hours and performance. The firm declined to elaborate any further. Associates here said bonuses are not commonplace, and those lucky enough to receive them typically get $3,000 to $4,000, compared to the $5,000 to $7,000 handed out a few years ago when the economy was stronger. Firm chairman Mark Alderman did not dispute the numbers provided by associates, although there was a discrepancy as to how the bonuses are determined. Alderman said bonuses are awarded for merit-based reasons and are not wholly based on billable hours, but the associates interviewed said they don’t believe this is how it ultimately pans out when bonuses are distributed. Associates said their experiences show that billable hours are the sole determining factor for awarding bonuses. Wolf Block’s fiscal year does not end until Jan. 31, and Alderman said bonuses will not be handed out until the spring.

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