2020 has had no shortage of surprises — and not all of the surprises are bad.
In Biglaw, the latest big surprise is that in the middle of a pandemic and a recession, law firms are paying special bonuses. You can call them “appreciation bonuses,” which is the name bestowed upon them by Cooley, which kicked off the trend. You can call them “special bonuses,” the term used by Davis Polk, which issued the bonus scale that’s most widely used right now. But no matter what you call them, the bonuses are great news for associates — as well as quite surprising.
I certainly didn’t expect this plot twist in the story of Biglaw. To the contrary, in August, I predicted that bonuses would be down this year. But now we know that they won’t be; Cooley, Davis Polk, and other fall-bonus firms have already declared that 2020 year-end bonuses will be at least as generous as 2019 year-end bonuses.
Not all firms, however, have followed the fall-bonus trend. Kirkland & Ellis, traditionally a compensation leader, announced that it won’t be paying fall bonuses — but did promise that it would “take into account … the fall bonuses paid by any other firm” when calculating year-end bonuses. That was better news for associates than word from Cravath, also traditionally a compensation leader, which similarly declared that it won’t be paying special bonuses — but unlike Kirkland, Cravath made no mention of taking into account fall bonuses when setting the year-end bonus scale.
And then there are the many, many firms that have not made an announcement of any sort on fall bonuses. For a comprehensive roundup of the bonus announcements that have been made, check out ATL’s special bonus tracker.
What factors go into firms’ decisions on special bonuses? There are basically three: performance, peer pressure, and publicity.
1. Performance. This is, of course, the most important factor. The firms that are willing and able to pay fall bonuses are all doing well — or at least well enough — during the pandemic.
As Zeughauser Group consultant Kent Zimmermann predicted to Dan Packel of the American Lawyer, for the year of 2020, “a small set of firms will show an impressive jump in PEP [profit per equity partner], while more than half the market will be within 5% of last year’s numbers (up or down), and a third set, comprising roughly 20% of the market, will exhibit a steeper decline.” This seems about right to me, based on my own observation of the industry and conversations with law firm leaders.
The firms paying fall bonuses are almost all in either (1) the first group of firms that could see an increase in profits per partner this year (sorry, it’s always going to be “PPP” to me, not “PEP”), or (2) the second group of firms, slightly up or slightly down.
The firms in the third group, which are really hurting right now, are not in the bonus-paying group (or, if they are, they shouldn’t be). Indeed, instead of paying bonuses, some of these suffering firms might still have austerity measures in place.
2. Peer pressure. If some firms decided to pay fall bonuses despite shaky financials, then they probably did so out of peer pressure — traditionally a major factor, and sometimes the only factor, in many firms’ bonus decisions. The flurry of announcements in the wake of the Davis Polk announcement can be chalked up to Biglaw’s “keeping up with the Davises” mentality.
It’s worth noting, however, how many firms have either not announced anything or have announced they won’t be joining the fall-bonus party. Which takes us to the third and final factor.
3. Publicity. The decisions by Kirkland and Cravath not to pay fall bonuses were surely not driven by financial considerations. Kirkland must be having an excellent year, thanks to its market-leading bankruptcy practice, and while Cravath might not be doing as well, it’s still Cravath.
Instead, Cravath and Kirkland probably felt it wouldn’t be great, from a public-relations perspective, to be paying our special bonuses during a pandemic and a recession whose full extent remains to be seen. This concern for appearances is hinted at in the Cravath memo, which alludes to “this ongoing pandemic and all its challenges for our communities.” It’s made more explicit in the Paul Weiss memo, issued earlier today: “So many of our clients and others across our community are experiencing unprecedented economic trauma, including the shuttering of their businesses and the loss of hundreds of thousands of jobs, as a direct result of this pandemic. Providing a special cash reward in direct response to the pandemic does not feel right at this time.”
I wouldn’t be surprised if clients of these firms, especially general counsels at companies that have taken major hits during the downturn, expressed their displeasure over fall bonuses to Kirkland, Cravath, Paul Weiss, and other firms that have either announced they won’t be paying fall bonuses or have yet to announce. Paying bonuses to twenty-something lawyers during a time of national crisis isn’t a great look.
But you know what’s also not a great look? Millionaire partners taking home even more millions because their law firms remained busy during the pandemic, while many of their expenses — everything from travel to client entertainment to utility costs for their offices — went down or went away entirely. I suspect that one reason law firm partners have shared the wealth with their associates, in addition to a desire to express appreciation and support during challenging times, is that if they didn’t pay out such bonuses, the partners would end up doing obscenely well. In-house lawyers read the American Lawyer too — and they will notice next spring when certain firms report significant increases in PPP during a pandemic.
So for firms that are doing well right now, there’s a “damned if you do, damned if you don’t” problem regarding fall bonuses. If you pay them, you might look bad to some of your clients now; but if you don’t pay them, you might look bad to some of your clients later (and your associates will be unhappy too).
Having to hide how well you are doing: in the midst of a pandemic and a recession, it’s a good problem to have.
David Lat, the founding editor of Above the Law, is a writer, speaker, and legal recruiter at Lateral Link, where he is a managing director in the New York office. David’s book, Supreme Ambitions: A Novel (2014), was described by the New York Times as “the most buzzed-about novel of the year” among legal elites. David previously worked as a federal prosecutor, a litigation associate at Wachtell Lipton, and a law clerk to Judge Diarmuid F. O’Scannlain of the U.S. Court of Appeals for the Ninth Circuit. You can connect with David on Twitter (@DavidLat), LinkedIn, and Facebook, and you can reach him by email at dlat@laterallink.com.