Bonuses, How Do They Work?

I’m revisiting the hell out of old posts this week.  Not too long ago I posted about how Above the Law had an article detailing the horrendous burden of BigLaw associates possibly not getting the bonuses they expected.  In the article it was touted as an example of all that was wrong with the world, the fact that these poor, beleaguered first-year associates may see a reduction in their discretionary compensation that they are awarded in addition to a six-figure salary and benefits.  The world stood still, and people wept for them.

Actually, I’m pretty sure I just poo-poo’d the whole idea of this being a tragedy of some sort, because the vast amount of attorneys in the world aren’t in BigLaw and therefore have no expectation of receiving a bonus that’s pegged in any way to the Cravath Scale.  The Cravath Scale, by the way, is the salary and bonus scale paid by Cravath Swaine & Moore, LLP, a two hundred year old white shoe firm that is considered the industry standard for BigLaw compensation.  Let me point out that looking at the listing of law schools that Cravath attorneys hail from, very few of them are “for profit” law schools that exist outside outside of the top ranked schools in the country, and there are a number of foreign law schools on there.

The short read on this is for the vast majority of attorneys out there this holiday season, what Cravath does or doesn’t do won’t apply to you.  You are not BigLaw.  Your firm is not bringing in Cravath level money.  You do not work the same number of hours at the same billable rate and in the same markets as Cravath associates.  The Cravath Scale will have no effect on you, and is not a good benchmark for what you should expect bonus wise.

Hell, there’s a chance you shouldn’t expect a bonus at all, you lout.

Still, young first-year associates at small law and mid-law practices are questioning whether or not they should expect a Cravath style $15,000 bonus this holiday season.  Some are even believing that, since they make about half of what a Cravath associate makes, they should get half the bonus.  Others are wildly overvaluing their contribution to their office, and talking about “negotiating a bonus” based on their performance.  Notably, and recently, a poster in the super-secret lawyers-only subreddit postulated that because he made $90,000/yr and brought in about $185,000 this year, he should get about $7,000 because, based on his calculations, he made the firm $55,000 in profit.

A number of lawyers immediately jumped in to tell this young lawyer that what he should get is a dressing down, an invitation to apply his talents elsewhere, a minor bonus to incentivize him to work harder, or, my personal favorite, a jelly of the month membership.

If you don’t get this joke, I’m gonna need you to bone up on your holiday movies immediately.

First, this is an associate who makes $90,000, one would assume with benefits, and brought in about twice what he makes.  Note: you cost your firm more than your salary when you take into account office overhead, benefits, support staff, bar fees, CLE costs, etc. etc. etc.  These are facts.  Just you being in an office, even if the firm already had the office space available, costs them money. Your salary is negotiated based on that, and you are given a set amount of billables to make based on that calculation.

As this article points out, generally an associate is expected to bring in billables that are three times their salary.  The calculation is the first 2/3 is the salary and overhead, the last 1/3 is firm profit.  So based on that calculation, this associate will need to bring in $180,000 just to create a “break even” situation for the firm.  Then, and only then, is the associate turning a profit for the firm.  Based on the associate’s numbers, he’s generated $5,000 in profit for his firm when you apply the Rule of Thirds (which is what we call that compensation calculation).  Yet he expects a $7,000 bonus based on the imaginary pegging of his bonus and salary to a scale that’s established by a big law firm.

I’m sticking on my math hat!  Bear with me, I’m a lawyer and therefore never expected to do substantive math past adding up my hours and billables for the skells that employ me.  See, this associate, who is absolutely a real person, expected to get a $7,000 bonus based on the idea that he made the firm $55,000 in profit, or a profit-share of about 13%.  However, based on the Rule of Thirds, which archaic or not is generally followed by firms across the board in calculating costs and expenses, he only generated $5,000 in profit.  So, at 13% of the actual profit generated based on the associate’s own calculations and the standard accepted practice, his bonus expectation should be – drumroll please – $650.

Considering an actual Jam & Jelly of the Month Club membership is $215.40, he can probably get something a little better than that.  Or maybe not, because, and this is important, many small-to-mid firms don’t want associates that can’t generate the expected profit annually.

Look at it from the firm’s perspective:  They have hired an associate and they pay that associate well.  They provide the associate with training, space, support staff, and all of the necessities to practice law.  In return, they expect the associate to develop into an attorney capable of generating business and billing a requisite number of hours out to clients.  That expectation is not a suggestion, it is a threshold requirement for the associate to not only get a bonus, but in fact for the associate to remain employed at all.

Hell, I dusted off my contract in preparing for this post.  If I don’t bill my requisite hours, I’m out on my ass.  That simple.  It’s a requirement for keeping my job.  Bonuses?  Discretionary after I bill my hours.  I assure you, 90% of the lawyers not in BigLaw but acting as firm associates have similar provisions in their contracts.  Why?  Because law is a fucking business.

Seriously.  Partners are business owners, and as such they expect to make a profit.  It doesn’t matter if you’re the greatest legal mind of your generation, if you aren’t turning the expected profit for the firm, they’ll find someone who can, especially when you are a first-year associate.  First-year associates are the cannon fodder of the legal world; they are neophytes with no experience, no training, and can be interchangeable for the firm.  There is no effort in dismissing a first-year who is underperforming and replacing them with another first-year who can perform.  All the firm has lost is a year of an investment in the prior guy, which, in the long run, is better than an ongoing loss in profit from a consistently underperforming associate.  You don’t throw good money after bad.

So how are bonuses done in REAL law?  Not on Cravath.  At my firm, it’s a percentage cut of each hour I bill after I hit my threshold.  In some other firms, it’s a four-point system where they grant a bonus based on overall performance.  In still other firms, it’s a profit-share for the firm as a whole.  But in all firms, small to big, you have to hit your requirements to qualify.  Anything less than meeting the requirements isn’t going to entitle you to a bonus, it’s going to be an invitation to explain your continued existence to partners that are watching dollars walk out the door.

Look, the majority of lawyers out there aren’t at Cravath or its peers.  Most of us are solos or small-to-mid-size firm practitioners.  It’s asinine to expect Cravath level compensation packages in this field.  If you want that, you need to go to a big name law school, graduate at the top of your class, and be the type of lawyer that is at Cravath.  If you aren’t at Cravath or one of its peers, ignore the Cravath scale period.  It isn’t applicable to you.

And to the guy who thinks he deserves a $7,000 bonus for making $5,000 in profit, it’s okay to think you have greater worth to the office than you’re demonstrating, and maybe you do.  Sometimes people need time to hit their stride in the day-to-day of practicing law.  Sometimes partners recognize this and give you a bonus and a pep talk.

And sometimes motherfuckers get told they’re billing far below the expected standards and they need to get a new job.