With Cravath, Swaine & Moore’s announcement that its associates will get fatter year-end bonuses in 2012 than they did in 2011, the firm cut through some of the gloom that has clouded the financial outlook for large law firms of late.
The question now is whether Cravath’s peers will mimic it in doling out extra compensation as they have in the past — or pull back in light of the modest revenue growth most industry experts are expecting this year.
It appears the legal industry’s top tier still follows Cravath,
Cravath’s scale calls for first-year associates to get bonuses of $10,000 apiece this year, a 25 percent increase over the $7,500 last year’s first-years received, according to a memo sent to Cravath associates last week.
The year-over-year increases rise with seniority with seventh-year associates getting $50,000 apiece, or 33 percent more than the $37,500 those with comparable experience received last year. For senior associates, 2012 marks the first time the firm’s bonus scale has approached pre-recession levels.
Seventh-year associates last received regular year-end bonuses of $60,000 in 2007. This year’s seventh years are receiving $50,000. In 2007, however, associates also got “special” year-end bonuses of $10,000 to $50,000 because of the firm’s robust financial performance.
And for the first time, Cravath announced bonuses for an eighth-year class, who will get extra payments of $60,000 apiece. Unlike last year, the firm also included a partial pro-rated bonus of $10,000 for this fall’s incoming class.
No Hours Criteria
Though Cravath’s year-end bonuses are bigger this year than last, the total extra compensation its associates will receive this year is actually down slightly from last year when the firm — like many of its top-tier rivals — gave out spring bonuses.
The 2012 bonuses will hit a few weeks later this year than last on Dec. 21, according to the memo signed by Cravath presiding partner Evan Chesler, deputy presiding partner C. Allen Parker, litigation head Robert Baron and corporate head William Fogg.
The memo said the firm is not applying “any billable hour or similar criteria in determining eligibility” for the bonuses. At the same time, a Cravath source said the heftier bonuses reflect an awareness among firm leaders that associates have been shouldering an increased workload this year and are likely to rack up 10 percent more billable hours than last year. By way of comparison, a recent report from Wells Fargo Private Bank’s legal specialty group projected associate hours at most firms would end up flat for the year.
Other early adopters appear to be having a solid year despite a slowdown across the legal industry.
At Paul Weiss, for instance, associates are on track to bill an average of 2,000 hours, according to a source at the firm speaking on condition of anonymity. That compares to a nationwide associate average of less than 1,800 hours found in a recent survey by Wells Fargo, said Jeff Grossman, the national managing director of the bank’s legal specialty group.
Skadden Arps and Simpson Thacher, meanwhile, have been among the busiest firms in mergers and acquisitions work,
Simpson was the first of Cravath’s peers to fall in line, informing associates about its bonus plans in a memo Wednesday from chair Peter Ruegger, who said the extra compensation would be paid Dec. 28.
In a note that hit in-boxes a bit later in the day, Skadden executive partner Eric Friedman told the firm’s more than 1,000 associates that payments will go out Dec. 21 to “associates in good standing who have been reasonably busy over the course of the year.”
Proskauer’s executive committee sent its 445 associates an email Thursday laying out Cravath-scale bonuses to be paid Dec. 28. The memo said that those with more seniority than members of the class of 2004 will receive individualized bonuses.