Would that we all were an attorney with Cravath Swaine & Moore, LLP. In case you’ve been in incommunicative hiding, the old white-shoe law firm announced in 2017 that they were awarding $15,000 bonuses for the holiday season. For the second year in a row.
But most attorneys were not top students at top law schools now working insane hours trying to grab that golden ring of billables. Most attorneys are not now working at Big Law.
The average attorney works in a mid-size to small law firm. It can be a great law gig working in a small law firm as far as total compensation and the allowance for a life goes. The end of year bonus structures is different but hardly inconsequential. Small law firm bonus structures, added to other compensation benefits, can add up significantly.
Unlike Big Law firms, smaller firms often rely on many varying factors when it comes to awarding holiday bonuses. The first thing to realize is that if you are a freshly minted attorney, you cost your law firm more than your salary, so subtracting what you are paid from the revenue you generated won’t cut it. The second signpost is that unless you make your billables goal, you will be persona non-bonus.
Subjective vs. Objective Bonus Structures
According to Jan Sander in “Subjective and Objective Bonus Considerations,” bonuses are either subjective or objective. A subjective bonus structure is where “intangible value is created or the achievement is not economically measurable,” writes Sander.
Subjective factors include the following:
- Quality of professional work;
- Work ethic;
- Client relations and service;
- Personal development;
- Business development competence;
- Professional recognition;
- Training contributions; and
- Adding to the reputation of the law firm.
“Objective bonuses are defined as rewards for meeting or exceeding levels of billable hours, billings, collections or profitability,” writes Sanders. Here, a certain transparency is critical. The benefits of sharing information include the following:
- Helps manage expectations;
- Can pressure firm management to operate efficiently;
- Helps ensure that compensation is competitive;
- Incents improved billing and collection realization, cost management and revenue maximization (rates and other billing approaches);
- Improved business acumen and maturity at all levels;
- Supports building a profitable practice;
- Better prepare lawyers for eventual partnership; and
- Mitigates the tendency to focus on billable hours to the exclusion of all else.
A bonus payment comes about as a reward for a contribution that is not entirely repeatable. The large majority of small law firms do not guarantee attorney’s a holiday bonus. When they do award a bonus, most law firms consider job performance a factor as well as work ethic, teamwork, and commitment to the firm.
Additional Factors in Holiday Bonus Structures
Another factor a law firm might employ is the economic performance of the firm. Some law firms consider the number of billable hours that an attorney has achieved. Still, other firms factor in the number and quality of clients brought in by an attorney. Occasionally, associates are not considered at all for a bonus during their first one or two years.
Sometimes market constraints exist that make it difficult for a small firm to raise attorney salaries. This is where a well-run law firm can make bonuses work for both the firm and a firm attorney. While the attorney is rewarded with a bonus for a job well-done, the firm has not obligated itself to fly in the face of these market constraints.
With small law firms, attorney egos need not be defeated in the area of holiday bonuses when considering a firm like Cravath and its bonus structure. If you’re doing a great job, then you will more than likely earn a respectable bonus. If you’re doing an absolutely outstanding job, it’s not unheard of that you could earn a bonus that might make a Big Law attorney blush. It just depends on the factors.