Biglaw Bonus Barrier Breached Bigly

Episode Notes

Transcript

[Music]

Joe Patrice:  Hello.

Kathryn Rubino:  Hello.

Joe Patrice:  Welcome to the latest edition of Thinking Like a Lawyer.  I’m Joe Patrice.  Kathryn Rubino just decided to yell “hello” in there.

Kathryn Rubino:  Well I like to interrupt you because you’re a man and you know, sometimes that needs to happen.

Joe Patrice:  Yeah.

Kathryn Rubino:  So this is preemptive.

Joe Patrice:  Well I mean listen, I’m not arguing that that’s sometimes needs to happen.  I just don’t know if that is the instance where it needs to happen.

Kathryn Rubino:  It’s a preemptive one just so you get like a little glimpse of what it’s like.

Joe Patrice:  Okay fair enough.

Kathryn Rubino:  Yeah.

Joe Patrice:  We are all same.

Chris Williams:  And Chris.

Joe Patrice:  Yes, we’re also joined as per usual by Chris.  We’re from Above the Law.  We’re here to talk about some of the big stories of the week so that you can, you know, be informed about the happenings in the legal world.

Kathryn Rubino:  Well big news this week.

Joe Patrice:  There is.

Kathryn Rubino:  A lot of big news.

Joe Patrice:  You know what?  I think we can forego small talk for a second here because — I mean there’s just too much else to talk about.

Chris Williams:  That needs to sound too.

Joe Patrice:  To foregoing it?  For what?

Chris Williams:  That sound small talk.

Kathryn Rubino:   Do we?  I really thought you were on my side on this one Chris?

Chris Williams:  Hey I think whenever something special happens, that’s when you add the fanfare, maybe literal fanfare.

Joe Patrice:  This is where you would usually expect to see — you know, to hear small talk.  But instead we’re blowing up small talk because there’s too much to talk about.

Kathryn Rubino:  Wow.

Joe Patrice:  Yeah, that seems really loud.

Kathryn Rubino:  That was an intense sound.

Joe Patrice:  Let’s start off with the bonus discussion.  That’s obviously one of the biggest areas that we cover. So to recap, how about Kathryn, recap where we were before the ex-ante before today.

Kathryn Rubino:  Okay.  Before this week, Cravath had announced their bonus scales right before Thanksgiving.  The Monday before Thanksgiving, it was approximately a 15% increase over last year’s year-end bonuses.  So between $15,000 and $115,000 depending on seniority and those were year-end bonuses and that’s in addition to the raises that already happened this year and the special bonuses that already happen this year.

Joe Patrice:  Right.  So Cravath makes this decision.  Now, Cravath is historically the market leader when it comes to this, not every year but most years, the market waits for Cravath to announce bonuses and then tops.

Kathryn Rubino:  Yeah and even if someone moves before Cravath, I don’t think that the market has really settled until Cravath’s opinion is — until they weigh in on it in some way.  But this year, we noted that usually after Cravath makes their announcement it’s a flurry.  We’re very busy.  It’s constant updates from Above the Law.  “Oh, such and such firm has matched.  This firm is match, blah, blah, blah, blah.”  This year, we had a couple of matches, but not so many.  More than even big law firms who saw a ton of boutiques coming out and saying, “Yeah, we’re matching this big law scale.”  But the big heavy hitters in big law, we weren’t really seeing joining the fray.

We speculated that folks were waiting for Davis Polk to make their bonus structure known.  Because, for the last couple of iterations, whether it be raises or special bonuses or whatever, once someone else in the market has made an announcement, Davis Polk has come over the top.  So, it felt very much like some of the big law folks were waiting until Davis Polk waited to see what the news scale would be.

Joe Patrice:  Right, and it was pure speculation that it was Davis Polk, but we felt pretty good about that.  We went over some other.

Kathryn Rubino:  Well just because there, those folks over the last few iterations that have come over the top.

Joe Patrice:  Yes, so we thought it might be Davis Polk that and it turns out they moved today.

Kathryn Rubino:  Which we’re recording this on a Monday.  You won’t hear this until Wednesday.

Joe Patrice:  Right.

Kathryn Rubino:  But the Monday of this week.

Joe Patrice:  Right and what we got this morning was what I think some of us would’ve assumed might happen, which is that they matched Cravath, but put a kind of a premium, a ser bonus on top of it.

Kathryn Rubino:  Well right, they matched the year-end bonuses which as we’ve mentioned in the past is important because year-end bonuses are what people kind of assume that won’t go down year-over-year, unless something terrible happens in the market or something like that.  So they kind of built those in with special bonuses.  Those, come, those go, those aren’t really baked into your salary the same way that year-end bonuses are.

So, what Davis Polk did was do their — match the year-end scale that increased over last year rate that Cravath had set, but they put an additional special bonus out there for the class of 2020 and higher of about 20% of their salary number and that’s in addition to all the special bonuses that already happened this year, in addition to the raises that have happened this year.  They’re putting another — and, you know, some of the other folks who have matched do have some added bonuses, but it’s for either high billers or for folks in particular groups or some sort of discretionary unclear who’s getting it kind of a system.  But at Davis Polk, these are sort of across the board.  Everyone is getting this extra money and we expect quite a few firms to match this new improved scale.

(00:05:11)

Joe Patrice:  Right.  So what this does is make the class of 2020 which was already at a 20,000 bonus, they’re going to be at 24 and the elders with their 115,000 bonus are now going to be up to 138.

Kathryn Rubino:  Correct.  Right.  That’s a lot of money, a lot of money out there.  We very much expect folks to now start matching.  I guess there’s always a possibility that someone out there might come over the top again.  Let’s see, you know, fingers crossed for all the associates out there trying to pay off their student loans before the end of the year, but we mostly would expect I think a match at this point.

Joe Patrice:  Yeah and we gotten a little bit about already.  So Paul Weiss has already come in within about an hour of Davis Polk, I think, and came in with the exact same match.  Now, that’s interesting also, because Paul Weiss had already announced a separate special bonus, a discretionary bonus fund for certain attorneys which we all read as attorneys in those practice areas that are going crazy.  So from there, if you’re in that practice area, you’re getting this now plus something else.  This now with Paul Weiss joining Davis Polk, this now puts the — it begins it would seem the steamroller of people to match this Davis Polk number unless somebody thinks that Cravath is so eager to regain their position as a market definer that they’d like to go over the top.

Kathryn Rubino:  I don’t know.  That doesn’t feel like Cravath’s bag, but you know, you never know.  You never know.  But there are other folks that have led the market at other times that have not — Milbank for example has not yet weighted on their bonuses.  So it’s certainly a possibility, but what we generally expect to this point is a matching of both the year-end and special bonus numbers that DPW has put up

Joe Patrice:  I think that’s right.  But big news, big money.

Kathryn Rubino:  It’s a reason really.  Okay.  It’s a reason to go to law school though.

Joe Patrice:  Oh, do you think?

Kathryn Rubino:  I mean listen, certainly I think that’s the monetary reward for being at least in big law, is a part of the motivation why so many people decide to go to law school.

Joe Patrice:  Right.  Right, as opposed to like there’s other trades they could do.

Kathryn Rubino:  Sure, they are.

Joe Patrice:  Like they could be an accountant or something.

Kathryn Rubino:  They could, but that’s not why you go to law school.

Joe Patrice:  It’s not.

Kathryn Rubino:  Yeah.

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So, you know, you speak of Cravath and market definition in while it is true that sometimes they are not the firm that defines the market when it comes to bonuses and pay, they are the firm I think we all would agree that defines the market generally.  Whether it’s by people following Cravath or not, the Cravath system I think it’s fair to say looms large over the entire market.  I mean the whole idea of working for eight years as an associate and becoming a partner, which is, you know, extended out a bit as some firms have.  Although we did here last week of a firm going backwards, right?  And shortening, the partnership track back down again.

Kathryn Rubino:  Yeah, that was Kirkland that you heard about which was particularly interesting because Kirkland always has these massively large partnership classes year-after-year.  We wrote something earlier, they had I think over 120 folks made partner this year, but they have a bifurcated system of income partners and equity partners.  But what was interesting about their announcement, but shorting the partnership track was that was for equity partnership.

Joe Patrice:  Right, well because their income partnership track I think is six years there which is also a kind of a break.  But I mean bringing us that news, neither here nor there, brings us back to what the original point was, which is that Cravath defines things.  When we look at a firm that has a six-year income track and then a nine-year equity track, we say, “Oh, that’s not the normal way” as defined by Cravath saying, “Here’s how we do it” which is because they’re a very old firm and have done this for a long time which is why it’s so newsworthy that they are making a fairly major change to the way in which they model the model managed.

Kathryn Rubino:  Oh?

Joe Patrice:  Yeah okay.

Kathryn Rubino:  What are they doing different?

Joe Patrice:  The announcement today is that they are going to abandon lockstep compensation for partners which is a mainstay of how the Cravath system works for the last almost 50 years.  So almost half century, they have employed lockstep partnership compensation.

(00:10:04)

Meaning, if you’re some hotshot rainmaker, you don’t necessarily make more than the person who’s tending to their more mundane bankruptcy work needs or something like that.  The focus is always on the firm and partners are compensated based on the firm’s overall take of the year with, you know, staging — you know, first-year partners don’t make as much as more senior partners, yada, yada, yada.  But that has been the model with an eye toward avoiding, you know, generation credit fights which we’ve talked about how those are all sorts of problems for law firms as they try to modernize, but also to maintain a firm first focus.  That was a tongue twister there.

Kathryn Rubino:  Only for you.

Joe Patrice:  I didn’t see you say.  The point is, that was — so that model is being changed to a modified lockstep.  Now, there aren’t a lot of details as far as what that means.  The memo does suggest that the firm is cognizant of potentially losing the firm first focus and so, therefore this modified model will still most heavily reward the firm’s overall success.  But it does suggest that partners who are bringing in more money are going to be getting some sort of premium over other partners as an eye towards, you know, potentially not losing folks.

Kathryn Rubino:  Yeah.  I mean, I think this is really interesting for two different reasons.  The first is, obviously, was the first thing we talked about which is that, you know, there’s a very hot lateral market right now, which is why we’re seeing these crazy bonus numbers on the associate level, but it’s also having sort of this trickled up whatever kind of impact on the partnership as well where folks who have big books of business are looking to get paid for those.  And the congeniality of lockstep partnership collegiality and then congeniality as well perhaps of a lockstep partnership.

Joe Patrice:  Nice save.

Kathryn Rubino:  Listen, there’s lots of vocabulary words we can choose to use, but that kind of firm first focus — you know, while maybe nice and part of what initially gave Cravath a lot of its cachet in the industry is not as valuable anymore.  But the other kind of counter to this is — you know, on my other podcast, The Jabot, we talk about diversity and the law, and one of the bigger issues that people bring up time and time again, we’re talking about diversity and big law specifically is origination credit, right?  You kind of preview that a little bit in your earlier answer when you start talking about, you know, “Who gets this money?  How do we divide up?  Who gets credit for this?  Should it be the one partner who got it handed down because they’re great uncle’s third cousin’s mother’s brother knows X at big bank?  Or should it be, you know, and these tend to reward folks who are built into a system of power and potentially have these connections?”  Whereas, you know, minorities and women tend to get the short end of origination credit in a lot of firms and it’s a constant problem.  And it’s interesting as firms, who have relied on origination creditor are starting to wonder about how this is impacting their diversity efforts.  We see, on the other hand Cravath saying, “Well, maybe we need a little bit of that origination credit nonsense going on.”

Joe Patrice:  Yeah.  Exactly.  It’s a weird change now given the attention that you just pointed out which is being discussed in the industry at large that said, Cravath has not exactly been lighting it up on diversity efforts historically, so maybe if this wasn’t.

Kathryn Rubino:  I must say that their system is working.

Joe Patrice:  Maybe it was important.  Yeah.

Kathryn Rubino:  But the origination credit.

Joe Patrice:  Yeah.

Kathryn Rubino:  Well we know that the origin credit system can be problematic when it comes to diversity efforts.  Is it always no?  Is there ways to faux with it so that it works?  Sure of course, but there’s a lot of potential problems there and they seem to be okay with that.

Joe Patrice:  This struck me as — I just went back to the kind of blockbuster Ethan Klingsberg move when Freshfields grabbed him from Cleary along with a few other partners.

Kathryn Rubino:  By another firm that was known for its lockstep partnership.

Joe Patrice:  Right and it kind of goes back and well and this was also a case when Lewis Liman was nominated for Southern District judgeship which Judge Liman now has, but his financial disclosures, there were some eyes raised about how he could pop.  He’s not making very much money and it’s because, of course that firm, much like Cravath really did believe in the lockstep thing.  But both of those stories were kind of signals that the lockstep thing is putting firms at a disadvantage in some instances and it’s unfortunate because I think it actually is a better way of running a firm.  I think like you kind of hinted, it trickles down to everything when the partners aren’t fighting with each other and having fiefdoms, work assignments are more equitably distributed.

(00:15:12)

It’s not one person trying to hog one associate because their work is more important than everyone else’s yada, yada, yada.  I think it’s a great thing and it’s just kind of unfortunate that it seems like it might be on the way out.

Kathryn Rubino:  Well I mean, there’s also the move towards — you know, firms are generally partnerships, but they’re really just large corporations at this point and the smaller big law firms in terms of head counts are the ones that kept with things like lockstep partnership, but the massive huge firms like the Kirklands never had that kind of partnership.  They’ve always had the tiers and this is sort of — as firms get bigger, it’s a lot harder to maintain those vestigial kind of trappings of, “You know, lets you and I take on the world together” kind of a model of partnership that I think is romanticized at firms.

Joe Patrice:  Yeah.  Well, let’s hear from Lexicon for a second and be right back.

[Music]

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Joe Patrice:  All right, well to lighten the mood a little bit, we can talk one of the big stories from last week was a Ninth Circuit sparring perhaps in some opinions.  We had a gun control case where Judge Lawrence VanDyke who people may remember it was determined by the ABA as not qualified for that job.

Kathryn Rubino:  The life.

Joe Patrice:  But was given the job anyway, he has since used his ability to write the dissents to mostly just complain about other judges, just writing dissents saying that other judges are — he called them criminals in the past.  He calls them possessed in this one, you know, just that sort of stuff.

Kathryn Rubino:  What he’s doing is writing for the Supreme Court, right?  If you feel like tuning this up –.

Joe Patrice:  I don’t even know if he’s writing for the Supreme Court because if he were writing for the Supreme Court, I think there would be some case citations in these dissents than there are not.  Instead, what I think he’s writing for is to be meant a town hall editorials or whatever.  But it seems as though there’s at least one judge who has decided that he’s pretty fed up with this.

Kathryn Rubino:  Had about enough.

Joe Patrice:  Yeah.  Judge Hurwitz wrote a concurrence in which he takes aim at the tone of these dissents and explains that this is wildly unacceptable.  He also refers to at one point he says, “The way in which you characterize this would be is unfair.  It would be less fair than if I were to say that you make this decision based on your own personal infatuation with guns” which probably was accurate.  But as he says, not what he’s going to do.

Chris Williams:  Wait, in judge speak, that’s incredibly incendiary, isn’t it?

Joe Patrice:  Yes.  Oh, yeah.  No, this is in judge speak.  See the thing is, what VanDyke’s dissent is incredibly incendiary in normal person speak and Hurwitz’s concurrence is incendiary in judge speak.

Chris Williams:  And that’s an important distinction to make because like an American might get mad and so like cursing out you and your mother and tell the things she does on weekends.  But like British people, they say things like, “hmm quite, we like them quite stings a lot more.”  So just in case we have any non-legal listeners for whatever reason, you should be more appalled and shocked at the, “You don’t make unbiased decisions.”

Joe Patrice:  Yeah, I feel like the folks and the listeners in the South are familiar with the “bless their heart” phrase, which I think is about the same sort of thing.  So that was going on.  I feel as though one side effect of this is after I wrote this article, I got a video sent to me by a tipster of a few years ago when VanDyke was still a practitioner and he appeared before the Ninth Circuit.  Judge Hurwitz didn’t seem all that impressed with him then.  Ultimately, he does rule in his favor.  Well partially it’s a firm to pardon reversed apart, but there’s a 30 minutes or so worth of exchange where he’s more or less dumbfounded at the failure of an advocate to understand basic stuff.

Kathryn Rubino:  Well I think what’s also interesting about this Ninth Circuit infighting is that this is not the First Circuit that has had this issue, right?  The Fourth Circuit, we wrote about this a few months ago.  James Judge Wynn called out his colleagues for writing dissents that like advisory opinions that read like editorials, right?

(00:20:14)

Joe Patrice:  Right.

Kathryn Rubino:  So, this is not the first time where folks are calling out these sort of extra spicy dissents that are written not for their legal merit, but rather in order to either drum up the base or to write to the Supreme Court as we talked about earlier, or you know, kind of to make their position known as political actors outside of their role on the judiciary.

Joe Patrice:  Well the Fourth Circuit thing I think was different, but in some ways more problematic.  So, in those instances, you had these en banc hearings where the court says, “This is the position of our Circuit” and rather than file kind of principal dissents or just lodge a dissent, these folks were writing treatises with the express intent of these being advisory opinions to the Supreme Court which right seems like it is overstepping the proper role of a judge which is problematic.  These VanDyke things are not touching on that.  These VanDyke things are just — I think that the other people on this court of criminals, which is.

Kathryn Rubino:  Sure, but I think that the difference between the unqualified judges writing dissents in a lot of ways too, but it is very interesting at a time when the federal judiciary’s legitimacy is really — is at a crucible moment in a lot of ways, right?  And folks writing these out-of-pocket kind of dissents and members, their colleagues calling them out on how they’re deciding to use their power as Circuit Court judges, I think is very telling for the long-term viability of the institutions.

Joe Patrice:  Yeah.  No, no, it’s great times.  Great times.

Kathryn Rubino:  We live in fun times, but I wouldn’t give her a little bit of precedented things happening instead of always un.

Joe Patrice:  Unprecedented.  Oh.

Kathryn Rubino:  See, yeah, unprecedented.  Yeah.  Yeah.

Joe Patrice:  Yeah, that was terrible, and I get in trouble for sound effects and then we had to deal with that.

Kathryn Rubino:  Yeah, no.

Chris Williams:  Okay, do you need to need to a Mortal Kombat thing to like the sound board or either like a fight or “Oopsie” like one of those two.  Like I feel like a weird Pokey, just my two cents.

Joe Patrice:  Yeah.

Kathryn Rubino:  I love it.

Joe Patrice:  Yeah.  No, I mean we’ve got a few things.  Yeah, we definitely do need to make some changes to that.  With that said, I think we’re coming close to or a little bit earlier than we usually are.

Kathryn Rubino:  Because we didn’t have to talk.

Joe Patrice:  Oh yeah, no, that’s true.

Kathryn Rubino:  Maybe you should have been a little bit less excited about your bomb noise.

Joe Patrice:  No.  Well the bomb noise I hadn’t had planned.  I was just more excited about getting to the bonus situation because I figured it was going to take a lot of time.  But yeah, there’s not much else to say.  Oh you wanted to mention the holiday gift guide which it’s just gone up.

Kathryn Rubino:  Well, it is the holiday season and the lawyers in your life probably do need a little recognition and you know, that’s always a possibility.  Yeah, you always put together our annual gift guide.  What was like your kind of most fun thing that you saw on the guide?  What would you like?

Joe Patrice:  I don’t know.  I didn’t really even think all that much about what I would like.

Kathryn Rubino:  Did it together without even?

Joe Patrice:  Yeah.  No, I mean I really thought — well, I always approach the gift guide from the perspective of not things I necessarily even need, like I think of like desk toys for people at their offices and stuff like that, which like, “I don’t need that.”

Kathryn Rubino:  Offices?

Joe Patrice:  Yeah exactly or like cool luggage for business travelers and like, “I don’t do that.”  Lawyers, do that.  I no longer do that.  So, I don’t even think about it in the terms of things that I need.  I guess Ellie’s book is on there, so you know.

Kathryn Rubino:  Yeah, that comes out actually though in 2022.

Joe Patrice:  It does kind of unfortunate, but you can pre-order.

Kathryn Rubino:  This is the cycle, yes.  But I do think generally speaking and one of the things when I perused your gift guide that I would always be the most excited about are the book section.  You know, it’s one of those things where even if the lawyer in your life doesn’t immediately get around to reading the book, having it on their shelf is, especially if you have something for a law professor or someone equally smart in some way, it’s a nice little status thing that also can be enjoyable.

Joe Patrice:  Yeah.

Kathryn Rubino:  Well, what would you want as a former law student, Chris?  What kind of like law student gifts would be the best in your mind?

Chris Williams:  Debt forgiveness?  (00:24:46) keep their word.  No, seriously, I remember back when Senator McConnell was still writing.  She was like, “Yeah, every month or in the pandemic like $2,000 or $3,000 to everybody.”  I would love that.  I don’t know for Justice Thomas to speak more often so I could see like what the machinery are doing up there and I’m tired of the fold mystery.

(00:25:08)

Like I want him to ask a something like really stupid be like, “What is consistency?” or I found the words like it’s meant to be like really probing but it’s like he wasn’t paying attention.

Joe Patrice:  Maybe he did actually ask a lot more questions in the Zoom era than he ever had in person.  We finally got him to start asking some things and he did say some stupid things, like he talked about Nebraska as an elite college football program.

Kathryn Rubino:  Burn.  No, but the other thing interesting about the Supreme Court oral arguments is that Chief Justice Roberts has instituted a new system to make sure all the justices have an opportunity to ask questions in a particular way because of all the data that came out saying that female Supreme Court justices were more likely to be interrupted both by their colleagues as well as by advocates appearing in front of the court than their male counterparts.  So he took that very personally which, you know, fair and apparently it’s getting slightly better according to Justice Sotomayor.  We’ll see.

Joe Patrice:  So, check out that.  Check out the bonuses.  I’m sure there’ll be another like nine of them before we finished recording here.

Kathryn Rubino:  By the time this comes out on Wednesday.

Joe Patrice:  It will be.

Kathryn Rubino:  It will be many, many.

Joe Patrice:  Something will have happened.  So yeah, thanks for listening everybody.  You should be subscribed to the show so you’re getting up sets when they come out.  You should get reviews, give stars, write something.  It helps out.  You should be checking out Above the Law, the website where you can read these and more stories all the time and kind of get different takes on them than just the ones that are on this show.  You should be listening to other podcasts.  Kathryn hosts The Jabot.  I’m guest on Legaltech Week, Journalist Roundtable.  There’s also all the shows that the Legal Talk Network has.  You should be following us on social media.  I am @josephpatrice.  She’s @kathryn1.  He’s @rightsforrent and we want to thank Nota powered by M&T Bank and Lexicon for sponsoring the show and with all of that done, we will talk to you next time.

Kathryn Rubino:  Okay.

Chris Williams:  Have a good week.

[Music]

(00:27:30)

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Podcast transcription by Tech-Synergy.com

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