As transactional practices have slowly improved, so have the sizes of associate wallets.
Associate salaries at Philadelphia’s major law firms were raised as much as $10,000 in recent months to a standard of $115,000. And now, after a lull period that corresponded with the economic doldrums of the past three years, associate year-end bonuses also appear to be more bountiful.
After quizzing almost 30 Philadelphia law firms about their bonus programs, The Legal Intelligencer has learned that save for a few firms, most bonus programs have not changed in structure but many have increased the pot of money handed out to associates.
The criteria for deciding who gets bonuses and how much money they get are the same at most firms. Billable hours are still the most frequently mentioned standard, but firms appear to be more quick to cite other measures, such as work quality, fee origination and firm citizenship.
Coleman Legal Search’s Robert Nourian said that most associates complain about base salary more than bonuses. But he said those who do complain about bonuses usually do not like what they perceive to be an overemphasis on billable hours in the criteria.
“Hours are the most heavily weighted,” Nourian said. “And I think the reason is that it is an objective measure. If you bill 300 more hours than someone else, then you are working harder than that person. But I think some people feel that quality of work should be a larger factor.”
Legal consultant Robert Denney said billables are clearly the main criterion for junior-level associates. But when associates reach their fourth year and are more developed as attorneys, they become eligible for bonuses based on merit, fee origination and firm citizenship. Denney said he does not think billable hours are the best way to judge an associate’s contributions to a firm.
“It’s an objective way but not the most valid,” Denney said. “Many associates cannot regulate the amount of work they are assigned until they get closer to partnership. What they can do is handle the work they are assigned to a high level and be industrious in trying to build a practice and help the firm out with non-billable activities.”
Abelson Legal Search’s Sandra Mannix said when firm management evaluates associates for bonuses, they should be judged partly on the practice group for which they work.
“In the trusts and estates department, billables are not relative and work quality is,” Mannix said. “You don’t want to lose a star associate in that practice just because another department is billing more.”
While Mannix said salaries are still a major issue for associates, bonuses also factor into whether someone is going to stay or lateral somewhere else.
“I had a young lawyer who was desperate to leave her firm because she was stuck doing document review and other low-level work,” Mannix said. “But [the firm] was still paying her a big bonus because they don’t want to lose her. It was enough of a bonus where she wound up staying at the firm even though she didn’t like the work.”
Mannix said one of the most frequent complaints she hears from associates about bonuses is that they are often at the subjective mercy of the department head. If the department head is tightfisted, the associate will wind up paying for it with a smaller bonus than someone in a department where the head is more generous.
Below is an alphabetical list of the city’s major law firms and comments from management about their respective bonus programs. The Legal asked firm managers what criteria they used before handing out bonuses, what percentage of associates received bonuses for fiscal year 2004, what range of bonuses were handed out, and what, if any, major changes were made to the structure of the program in recent years.
Akin Gump Strauss Hauer & Feld
Philadelphia office managing partner Ronald Panitch said the firm has 17 associates or counsel in Philadelphia. He said 13 of those lawyers received bonuses, which are awarded as one main bonus for merit, billables, client development and firm citizenship. He said associates receive full billable credit for pro bono work. The range fell between a nominal figure (Panitch estimated $1,000) for first-years to a five-figure number that Panitch declined to specify.
Ballard Spahr Andrews & Ingersoll
Ballard Spahr recently revamped its bonus program, making more associates eligible and increasing the amount of money distributed. Associates say they can be eligible for bonuses as soon as their second year out of law school but that third year is the most common starting point. Firm management said it primarily looks at quality of performance and then fits the associate into a range by factoring in fee hours (with unlimited pro bono hours counting against the 1,900-hour requirement) and business origination. Partner Geoffrey Kahn said the amount of money distributed more than doubled in the last year, with ranges falling from $7,500 to $40,000.
Managing partner Fred Blume said the firm awards bonuses based on hours and business origination. The hours bonus is figured by multiplying an associate’s billable hours by his or her billing rate and applying a merit-based percentage to that. But Blume was quick to point out that associates do not receive bonuses just because they meet a billable threshold.
Blume said the firm also awards bonuses for 10 percent of business originated but that management also looks at how much of it was realized. He said 80 percent of associates received bonuses in 2004, with the range falling from $5,000 to $50,000.
Chief operating officer Francis Muracca said almost 60 percent of all associates at the firm received bonuses for their work in 2004. He said the average bonus was about $10,000 while the largest one was $60,000.
Muracca said the firm awards bonuses based on a variety of factors, including hours billed, client relationships, firm citizenship and business origination. He said pro bono work up to about 100 hours can be counted against billables but he said the firm does not have a hard line in that regard. He said if an associate is working on a major pro bono case, the firm will extend that limit.
Conrad O’Brien Gellman & Rohn
Managing partner James Rohn said the firm supplements its $100,000 starting salary with bonuses that were awarded last year to each of its 24 associates. He said the firm bases the individual amount of the bonus on hours, merit, business generation and firm citizenship. He said the billable target is between 1,900 and 2,000 hours and that while the firm does not award billable credit for pro bono work, it is factored in under firm citizenship. He said bonuses ranged from $3,300 (for someone who joined the firm in the last quarter of the year) to $40,000, with the average being $13,500.
Managing partner John Cunningham said the firm has no hard and fast rule for billable hours that correlates with receiving a bonus. He said the firm weighs production, fee hours, business generation and firm citizenship before awarding bonuses. Associates can receive up to 50 billable hours of credit for pro bono work.
Cunningham said roughly 50 percent of associates received bonuses at the end of 2004, down slightly from the 52 percent who received them the previous year. But he said the high end of the bonuses was around $50,000, up from roughly $40,000 in 2003. The low end of the range is a few thousand dollars, Cunningham said.
Chairman Barton Winokur provided information for the firm’s associates based in the United States. He said that 168 associates (over 40 percent) received bonuses from a pool of more than $4.1 million. That pool increased from $1.76 million in 2003, when 138 associates received bonuses. The range of bonuses awarded in 2004 was from $5,000 to $70,000 . Winokur said the firm eliminated automatic bonuses and awarded them on factors such as fee hours, work quality, pro bono and firm citizenship.
Partner Penny Ellison said the firm last year changed its associate bonus program to make junior associates (years one through three) eligible. She said the firm factors in billable hours, dollars collected on time, business generation and firm citizenship into determining who receives bonuses. She said associates can get up to 100 hours credit for pro bono work and that the billable target is 2,000 hours. But Ellison said there was no billable threshold to make an associate eligible for a bonus.
The range of bonuses in 2004 at Dilworth Paxson was from $1,000 and upward to $10,000. Ellison said all associates who have been at the firm for at least a year are eligible for bonuses and that the majority of those individuals did receive one in the most recent fiscal year.
Drinker Biddle & Reath
In 2003, Drinker Biddle raised its starting salaries to $115,000 and gave first-year associates a $10,000 guaranteed bonus at the end of the year. Before that, first-years received $5,000 if they hit a 1,950 billable hour threshold. Second-year associates make $117,500 in salary. In 2004, bonuses for second- and third-year associates were $7,500 for billing 1,900 hours and $15,000 for billing 2,000 hours, according to Jack Michel, chairman of the firm’s business and finance department.
Michel said that bonus numbers increase with experience. Associates receive credit for up to 6 percent of their billable hours for pro bono work, though Michel said the firm does extend that number if a lawyer is working on a major pro bono matter that takes up an inordinate amount of time.
Michel said the firm also awards bonuses for merit and business origination. The merit bonus considers exceptional work quality, high billables and firm citizenship. The business-origination bonus awards associates a percentage of paid billings for matters they originate that exceed $20,000.
Michel said almost 70 percent of associates received bonuses in 2004, with a range from $2,500 to $75,000.
Chairman Sheldon Bonovitz said the firm has a 1,950-hour billing requirement for associates to obtain bonuses but that they can also receive 50 hours of pro bono credit toward that number. The firm had not previously given pro bono credit.
He said about half of the firm’s associates received bonuses, with the range from $5,000 to $40,000 and the average at $13,000. He said those numbers represent a 20 percent increase over 2003. Bonovitz said the number of bonuses handed out and the amount of money awarded are determined by billable hours and the quality of work performed.
Eckert Seamans Cherin & Mellott
The firm uses several criteria in determining the number of associate bonuses. According to firm chairman Timothy Ryan, chief among those factors are quality of work, followed by whether one performed well above their experience level, billable hours, firm citizenship, fee origination and business development.
Ryan said the firm has been careful not to link bonuses directly with billables because he doesn’t want clients to believe there is an incentive for associates to put in face time. He said associates generally receive up to 100 hours credit for pro bono work toward the annual billing target of 1,950 billables.
Ryan said more than half of the firm’s associates received bonuses in 2004. He said the bonuses ranged from a few thousand dollars to well over $10,000. He said the high end of the bonus structure would include from 15 to 18 percent of base salary.
Because its fiscal year does not end until March 31, the firm has not yet awarded bonuses for 2004. But firm co-chairman Abraham Reich said over 98 percent of associates received some form of bonus last year, with the range from $500 to $46,500.
Reich said the firm awards three types of bonuses – hours, merit and fee origination. He said if associates bill 1,900 hours, they receive $2,500 with the bonuses escalating for every 50-hour increment exceeding that number. He said associates can receive up to 50 hours credit for pro bono work.
Reich said merit bonuses are based largely on performance quality, with firm citizenship and civic activities also factored in. As for the fee origination bonus, he said associates receive 10 percent of fees collected.
Philadelphia office managing partner Michael Lehr said all of the firm’s associates received bonuses at the end of 2004 and they ranged from $15,000 to $60,000. Lehr said the Miami-based firm grades associates on two main factors – work quality and amount of revenue generated and collected. He said revenue generation factors in billable hours and that the firm does offer credit toward that number to associates for pro bono work.
Hangley Aronchick Segal & Pudlin
Managing partner David Pudlin said the firm’s board of directors awards bonuses to all associates. But unlike most firms, the bonuses are awarded not based on hours billed, merit or business generation. Rather, they are based on the financial performance of the firm each year. Pudlin said the firm’s associates have indicated to management that they did not want to receive bonuses based on the number of hours they billed. The firm budgets for its associates to bill 1,800 hours a year.
Pudlin said all of the firm’s associates received the same amount of bonus except for first-years, who receive half that amount. Pudlin declined to reveal the amount. He did say that a few exceptionally hard-working associates have traditionally received a higher-level bonus.
The second part of this two-part series will appear in tomorrow’s Legal, starting with the firm of Klehr Harrison Harvey Branzburg & Ellers.