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After Milbank matched last year’s holiday bonus schedule — “matched” assuming you ignore the summer bonuses from last year — we aggregated some of the best associate commentary about the new bonuses. One irritated tipster objected to the mundane bonuses by pointing out that the firm had raised rates this year and arguing that bonuses should have gone up accordingly and anything else is just profit taking by the partners off the backs of the associates:
They increased rates by 4% this year, so comp should go up, not down.
The next firms down the line should know they are going to get ravaged by the legal rags if they just match when the partners get millions while the workhorses don’t even get a cost of living increase.
I’m not so sure this tracks. In his reaction column, Elie Mystal argued that firms are gearing up for the next recession though he questioned whether any firm is going to stay its hand at layoff time based on cheaping out now. If partners are just pocketing the extra revenue, then the answer is emphatically no, they will not let this deter them from future layoffs.
But partners may not be pocketing this extra money. As we also covered yesterday, many Biglaw firms have been holding on to more revenue and adding it to partner capital contributions. In other words, that money could in fact be going into the rainy day fund that will keep the firm paying its bills — to both vendors and associates and staff — when times get tough.
There’s also an argument to be had that the salary hike last year — also initiated by Milbank — was a bridge too far under the existing finances. It’s not that the market couldn’t bear the increase, because obviously it could, but whether that increase was shouldered by decreasing partner profits or passing it on to the clients was an open question. You can guess how that was ultimately resolved. And despite the caterwauling of those clients, they continued to dutifully pay because the only thing worse than paying more for legal services is having to explain a devastating loss by admitting the legal department was trying to cut corners on counsel.
The retort to this is that if true, why were summer bonuses on the table last year and not this year? Remember Milbank wasn’t originally on the summer bonus train — that was Simpson’s contribution to the cause.
Finally, boosting rack rates doesn’t necessarily mean the firm’s billing out at that rate. Biglaw billing is wrought with discounts to make clients feel special. Is a 4 percent rate increase really bringing in 4 percent more scratch? Probably not. Milbank’s revenue is — if Am Law numbers are to be taken as gospel — up about 12 percent, but headcount is also up roughly 6 percent. And, of course, they raised the salaries in the meantime.
The point is, it’s possible that bumping rates should result in a bonus increase, but it’s certainly not automatic. There’s a little more involved in running a firm than that.
Earlier: Biglaw’s Reactions To Same-Bank Bonuses
Law Firms Trying Not To Go Bankrupt This Next Recession
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.