Legal Village

All's too quiet on West Coast bonus front

Posted 3/12/2007 by Bar Talk

Want to kill a conversation with a California law firm leader? Talk about bonuses.

Weeks after top New York firms started announcing lavish special bonuses on top of the usual year-end handouts, California's firms have made no such moves of their own. Last week, leaders at eight of 10 leading West Coast firms declined multiple requests to talk bonuses.

One firm that did talk was Quinn Emanuel Urquhart Oliver & Hedges. William Urquhart says the litigation powerhouse is keeping up with the New York bonuses, just as it matched New York increases to associate salaries this year.

"We've taken a position: equal pay for equal work," he comments. In fact, the firm is promising to top the New York special bonuses by $5,000 (£2,440), though half the "special" sum won't be paid until June. Other West Coasters may be balancing bragging rights against the bottom line.

"There will be significant pressure on California firms to declare bonuses for associates, perhaps not at the level of New York, but I think they're going to have to come close," says William Brennan, a consultant with legal management consultancy Altman Weil. “The cost of matching bonuses is not as significant as the loss in perception and image."

"Some of the larger California-based firms are trying to see what the ultimate New York shake-up is with the additional year-end bonuses," adds Peter Ocko, a recruiter with Major Lindsey & Africa in Los Angeles. "They don't want to speak too soon."

What California honchos aren't speaking about is the special bonus, on top of the usual year-end award that Cravath Swaine & Moore announced this month. Firms such as Debevoise & Plimpton and Simpson Thacher & Bartlett also joined in, promising year-end bonuses ranging from $35,000 (£17,000) for first-years to $65,000 (£31,700) for senior associates, as well as a special bonus ranging from $10,000 (£4,800) to $50,000 (£24,400).

Nothing to see here?

Most California firms have, traditionally, announced bonuses later after calculating year-end financial results. Recruiter Madeline Seltzer of LA's Seltzer Fontaine Beckwith says the hesitation is business as usual - and the bonuses will be too.

"In the past, bonuses in California have been less, and that's probably what we're going to see on average," she says.

Consultant Peter Zeughauser agrees that the timing is typical, saying recent economic woes won't make firms tighten their fists. "They're not going to feel [the effects of the credit crisis] until next year and they're going to pay bonuses based on this year. You will see top California firms giving some healthy bonuses."

Zeughauser said New York firms like Cravath probably planned before the sub-prime market crash to raise base salaries to a $200,000 (£97,560) scale. But, when they saw clients such as big investment banks and hedge funds freezing salaries and cutting bonuses, it didn't seem an appropriate move. "So they paid it in the bonus instead - it looked a little better than to raise the base," he argues.

Back to front

Robert Hubble, the managing partner of Heller Ehrman, believes the timing lag in bonus distribution relates to the differences in the bonus structure between California and New York-based firms. In New York, bonuses are back-ended, relating to the firm's prior-year performance - something that is contingent and variable. Firms like Heller, based outside New York, spell out in the beginning of the year what the range will be, based on individual performance and a discretionary element, he says.

“It's like comparing an apple to a wagon,” he says. "How do you compare [a] system that's back-end loaded versus one that's prospective?" Under Heller's system, bonuses are made by 31 January.

"So, we have the year's close, and an entire year's performance," says Hubble, who claims it is too soon to tell whether the firm will be raising its yearly bonuses - something it will evaluate after the new year.

LA recruiter Delia Swan predicts that some premier firms in California are likely to offer a one-time special bonus, but it might not completely match New York's since "it's a different market".

And that, she acknowledged, could cause friction if a firm matches New York for its lawyers based in the Big Apple but offers less to other offices. It harkens back to the salary wars of the past couple of years, where firms initially tried to distinguish among offices, but many, eventually, opted for a one-scale approach.

"But then you run the risk of alienating New York associates," she points out.

On the other hand, by next year associates may look back fondly on worrying only about getting as high a bonus as everyone else. Brennan says they'd do well to enjoy the sweetened pot this year, before the effects of the credit crisis really kick in, possibly freezing salaries or even bringing lay-offs.

"The impact," he warns, "will be realised next year."

This article was written by Legal Week US sister title The Recorder. For more commentary on the world's biggest legal market, click here.