Big Law Hedges Associate Bonuses to Protect Partner Profits

Milbank LLP is cementing its position as a first mover on associate compensation, even as the latest round of year-end bonuses shows softness in the market for junior lawyers.

At least five major law firms this week moved to match a pair of bonuses topping out at an extra $140,000, and several competitors are expected to follow. The bonuses previously were announced by Milbank, marking the second straight year that the Manhattan-founded firm has been first out of the gate with the extra payments.

That may give Milbank a branding boost, but the stagnant scale for year-end bonuses exposes a shift among top firms toward cutting costs and protecting partner profits as revenue surges.

“Everyone is worried about profitability,” said David Nicol, head of the US practice for recruiting firm Marsden. “Firms across the board will realize that they’re having a great year, but that the costs are huge.”

Big Law’s annual bonuses scale, ranging up to $115,000 based on seniority, hasn’t moved since 2021. The new announcements include additional special bonuses of up to $25,000, which Milbank unveiled in August.

Separating the bonuses gives firms cover to stick to last year’s numbers going forward.

“This is firms deciding to split the difference,” said Kate Reder Sheikh, a recruiter for Major Lindsey & Africa. “That feels like a safer bet than increasing the scale, which then sets precedent that it’s going to be the scale again next,” she said.

Attention Grabber

Milbank’s “first-mover status” garners attention from associates, according to Nicholas Rumin, founder of New York-based Rumin Search Consulting.

“In this market, being able to draw the attention of associates is almost as important as how well you’re doing,” Rumin said.

Milbank has long been known as a top law firm in corporate finance, restructuring, and litigation. It brought in $1.5 billion in gross revenue last year with profits per equity partner reaching more than $5.1 million, according to figures reported by The American Lawyer.

The firm has made several lateral hires this year, adding former Federal Trade Commission official James Weingarten and a six-partner London investments team from Latham & Watkins.

It’s also seen departures, like of structured finance partners Martin Eid and Kathryn Weiss, who rejoined King & Spalding after a little more than a year at the firm.

By many accounts, the country’s leading law firms are doing very well this year.

The 50 largest firms saw revenue rise by nearly 15% and net income jump by 25% through September, according a survey by Wells Fargo’s Legal Specialty Group. The spike is thanks to increased demand, productivity, and billing rates, Wells Fargo said.

“Milbank was, obviously, wanting to make a statement and came out earlier in the year,” said Owen Burman, managing director at the Wells Fargo group. “We’ve always thought the rest of the market would fall into place—certainly by the end of the year—and they certainly have the money so I think they will share the wealth,” he said.

Milbank has been quick to roll out pay announcements, even if it hasn’t always had the last word.

The firm raised associate salaries by $10,000 across the board late last year, only for Wall Street’s Cravath and Davis Polk to ratchet up the scale for more senior associates. Many firms were likely waiting for Cravath, traditionally the industry’s compensation leader, to announce its bonuses this month before making their own decisions.

“Firms still wait for Cravath. It’s purely cultural and custom and practice for what has gone on for years,” Nicol said. “The reality is Milbank has set the scale. Cravath seems to be that lynchpin that everyone seems to wait for.”

The bonuses come as demand for associates has tailed off since a pandemic-era boom that saw firms cranking up salaries and throwing extra bonus cash at junior lawyers.

Associate productivity has ticked up slightly after falling to its lowest point on record last year. The total costs for compensating associates has continued to rise.

Firms are focusing their recruiting attention at the partner level, looking to juice profits to attract and retain top talent.

“Firms need to balance the need to keep top associates with the need to keep cash free to keep top rainmakers,” Rumin said. “It’s always a balancing act.”