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Sullivan & Cromwell has kicked off the year-end bonus season by informing associates they will receive additional compensation starting at $30,000 for first-years and ranging up to $50,000 for senior associates. The bonus, which pushes total first-year compensation to $155,000, is unchanged from last year, a fact likely to disappoint many associates, especially since bonuses for investment bankers are expected to rise considerably this year. A partner at Sullivan & Cromwell said the decision to hold steady on bonuses stemmed from the firm’s expectations that its overall financial results would be roughly the same as last year. Sullivan & Cromwell, one of the nation’s most profitable and prestigious firms, has traditionally been among the leaders in setting associate compensation. But it remains possible other firms will pay higher bonuses, forcing Sullivan & Cromwell to pay a matching supplement. Though Wachtell, Lipton, Rosen & Katz, the nation’s most profitable firm, stands apart with first-year bonuses usually starting at $50,000, other leading New York firms like Sullivan & Cromwell; Cravath, Swaine & Moore; Simpson Thacher & Bartlett; Skadden, Arps, Slate, Meagher & Flom and a handful of others have generally sought parity in terms of associate pay, especially at the junior levels. The usually swift but occasionally sloppy market alignment results from such firms’ fear of being disadvantaged in recruiting top graduates from leading law schools. In the past, the competition included both base salary, which increased from $85,000 to $125,000 for first-years between 1997 and 2000, and bonuses, which also peaked in 2000 at $40,000 for first-years and $100,000 for senior associates. Since then, however, New York firms, most of which still pay a first-year base of $125,000, have shown a marked preference for discretionary bonuses over salary increases. Though Skadden raised its first-year salaries to $140,000 in 2000, it has since paid a correspondingly lower bonus, so its overall associate compensation is in line with that of its New York rivals. Likewise, the September announcement of first-year salary hikes to $135,000 by two Los Angeles litigation boutiques, Irell & Manella and Quinn Emanuel Urquhart Oliver & Hedges, has engendered no reaction among New York firms. Five years ago, it was similar salary increases by Silicon Valley powerhouses Gunderson Dettmer Stough Villeneuve Franklin & Hachigian and the now-defunct Brobeck, Phleger & Harrison which drove New York firms to boost base pay. INVESTMENT BANKING MODEL The Sullivan & Cromwell partner said he thought the New York firms were moving more toward an “investment banking model” of compensation for associates, though on a smaller scale. Investment bankers and other Wall Street professionals typically receive the vast majority of their compensation in the form of bonuses. But while surveys indicate Wall Street bonuses are set to rise as much as 10 percent for the third year in a row, law firm associate bonuses have followed a less clear-cut trajectory. In 2001, the leading New York firms, citing a weak economy, slashed bonuses, lowering them further the following year. Though the economy and law firm profitability showed earlier signs of improvement, last year’s bonus represented the first boost in associate compensation in four years. Junior associate bonuses also have recovered far more than senior associate bonuses, reflecting greater concern about recruitment at that level. The elevation of the bonus as a component of associate compensation also has masked growing disparities in compensation among firms. Though the elite firms usually pay the same bonus to all associates in the same class without regard to performance, many only pay a full bonus to those associates who meet billable hour targets or other performance benchmarks. Such policies have frequently drawn the ire of associates. Three years ago, surveys of New York associates at Clifford Chance resulted in a scathing memo in which associates accused partners of stinginess and unfairness in awarding bonuses. The charges received a thorough airing after the memo was leaked to the press, and Clifford Chance thereafter instituted a number of reforms designed to raise associate morale.

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