Law360: BigLaw's Pause To Consider Bonuses Is Becoming New Norm

Aebra Coe | August 16th, 2024, 4:49 PM

It's been more than a week since Milbank LLP first announced it was offering special bonuses this summer to its associates and counsel. And traditionally, BigLaw has been swift to follow a market leader like Milbank on pay.

However, industry analysts say associates at large, prestigious firms shouldn't worry too much about whether they too will get a summer bonus.

Instead, it's likely many top-tier firms will join in, but law firms are waiting to see if another market leader, like Cravath Swaine & Moore LLP or Davis Polk & Wardwell LLP, will outdo Milbank on the bonuses, setting a higher bar. That would require firms to announce their bonuses twice if they're too quick to act.

It has become a bit of a recurring phenomenon in recent years, with something similar happening when Milbank announced base pay raises in 2022 and again at the end of 2023.

"My instinct is that we're going to continue to see what we've always seen — the peer firms are going to match," said Stephanie Biderman, a partner in the associate practice group of recruiting firm Major Lindsey & Africa. "It's been a week, but it's a week in August, and a lot of people are away."

Additionally, she said, firms aren't wild about the idea of doubling back to match a second time if another market leader ups the game.

"I think there's a combination of those two things happening in the market," Biderman said.

The shift that occurred in law firm compensation, departing from a time when BigLaw firms followed the first to announce a raise or bonus swiftly and uniformly, happened in 2020.

Cooley LLP announced special fall bonuses that year, and a handful of law firms began to join in before Davis Polk said it was handing out bigger bonuses than Cooley, and the industry fell in line with Davis Polk.

The following spring, Willkie Farr & Gallagher LLP announced a set of spring and early fall bonuses. A handful of law firms again followed suit before Davis Polk upped the ante, and the vast majority of peer firms joined in.

When 2021's year-end bonuses came around, Cravath was the first mover, but Davis Polk did the same thing yet again by saying it was offering bigger year-end bonuses than Cravath.

By the time Milbank announced a base pay increase in January 2022, the industry was wise to what was happening, and there was a long pause during which firms waited to see if Davis Polk — or another law firm — would set the bar higher on raises. A full month later, Davis Polk did announce bigger raises, but this time Cravath came back with an even larger offer, and the majority of the industry fell in line with Cravath.

The industry's most recent round of raises, which were launched by an announcement from Milbank in November last year, followed a similar trajectory; there was little movement for more than two weeks after Milbank's announcement until Cravath said it was upping the pay scale further, and the industry fell in line.

Michelle Fivel, a recruiter at Hatch Henderson Fivel, said she believes matches are coming, but doesn't know how widespread they will be.

"There are some firms that always pay top-of-market. I think the direct competitors of Milbank will match at some point," Fivel said. "The question is, where's the line? Which firms will decide they don't need to be neck-and-neck with Milbank and Cravath? Perhaps firms like Milbank are looking to create some daylight between themselves and some of the firms that won't necessarily keep pace."

Another indicator that matches are imminent is that U.S. law firms performed well financially during the first half of the year, according to Owen Burman, a senior consultant for Wells Fargo's Legal Specialty Group. The group tracks law firm financial results via a survey and plans to release midyear results in the coming weeks.

"Overall the industry is looking very good, but a subset of firms in New York are knocking the cover off the ball," Burman said.

Those results indicate that Fivel's question may be a good one, with some distance between prestigious New York firms like Milbank and Davis Polk, and the rest of BigLaw.

"Firms like Milbank that are in the mergers and acquisitions, private equity, fund formation and restructuring areas, their businesses are on fire right now, and they're really outperforming the rest of the industry," Burman said.

That means, he said, summer bonuses may not spread to "the average [BigLaw] firm."

"Everyone has the capacity [to offer the bonuses], but it's about whether firms are willing to do it," Burman said. "The firms at the top have the capacity to do so without affecting their budgets at all."

Burman added he wouldn't be surprised to see associate base salaries rise before the end of 2024.

That would be a quick change compared to the historical rate of base pay increases in the industry; top-tier firms just announced base pay raises at the end of 2023, with some firms announcing matches into 2024.

But large law firms have raised pay more often in recent years than they typically have historically. The base pay scale for associates was increased across the industry in 2023, 2022, 2021, 2018 and 2016. The last time the pay scale was increased before that was 2007.

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