AssociateSpeak

Last night, on the season première of 24, we see a different Jack Bauer: not the no-holds-barred, assassin-type Jack, but the grandfather who wants nothing more than to stay retired and play with his cute granddaughter all day.  But for reasons I cannot fathom, Kim–Jack’s no good, always-makes-dumb-decisions-so-that-Jack-has-to-risk-his-life-to-bail-her-out, daughter–decides to persuade her father that he needs to save the world.  Again.  Not only is this stupidity to the nth power (we just know that Jack’s going to be beaten to a pulp and almost die, it’s actually cringe-worthy at this point because Kiefer Sutherland is starting to show his age, and who really wants to see a grandfather get tortured anyway?), but it’s simply unrealistic for Kim to tell Jack to put himself in harm’s way for the eighth time after she had spent the first seven seasons as the critical daughter who constantly loathed her father for his job, for being away, for always putting his family at risk due to his profession.  It would have been far more persuasive if Jack had simply said, upon Chloe’s entreats, “Yes, I made you go through hell and do crazy things that could have ruined your life and career so I owe you one.”  But this is 24, where the writers apparently enjoy seeing how absurd the plotlines can get while we, the viewing audience, continue to watch the show.  They’re probably thinking to themselves: “Suckas!  You think that requires suspension of disbelief?  Wait until next week!”

So what does any of this have to do with associate bonuses, the topic that we started last week and continue to explore in this week’s posts?  Well, a lot, actually.  You see, it’s naturally exciting to get worked up over the bonus check.  It’s a lump sum payment of what could appear to be a substantial amount of money.  And who doesn’t get worked up over large amounts of money?  So when we get the bonus, our natural human reaction is to be giddy like school children, and spend it on something nice.  Bonuses have funded BMW M3s, Ducatis, and Corvettes.

The bonus also acts as affirmation that we’ve accomplished something.  As human beings, we like to feel accomplishment.  Getting a bonus is a weird sort of approval from the firm partnership that you are doing well.  Conversely, not getting the bonus when your colleagues are makes you feel that you are somehow “lagging” or “behind.”

But what’s really happening?  Let’s blow away the smoke, shatter the mirrors, and reveal Oz for who he really is.  Is the bonus really as large as it first appears?  If you’ve read last week’s posts, you know that the math usually doesn’t add up, and you are actually being paid far less per hour for those “bonus” hours that, if anything, should be worth far more.  As for accomplishing something, what have you really accomplished?  If you billed 2,200 hours instead of 2,000, what did you accomplish?  Aside from losing friends, pissing off your family for not calling or visiting often, accruing massive sleep dept, and otherwise displaying all the symptoms of a tired, grouchy workaholic?

You see, “Oz” would like you to believe that the bonus means something, that you should want to work that hard, that you are amply rewarded for your hard work (lump sum checks appear larger than they actually are), and that the firm “appreciates” your hard work.  It’s true, Oz gladly pockets the vast majority of the profits from your severely underpaid overtime work, but the only appreciation you truly receive is the figment of imagination in your head that tells you that the firm appreciates it.

Somehow, Oz has convinced you that you should compete with your fellow associates to see who sleeps less, who bills more hours, who sacrifices more for the firm–and that this is supposed to all be a good thing.  Like the writers of 24, Oz feeds you the absurd, packages it with a red bow, and somehow we do suspend our disbelief.

Welcome to the world of 24, I mean, Biglaw.

Law firms, unlike other companies or businesses, have approached associate salary the way hikers rely on the North Star:  it’s visible, it’s fixed, and it looks the same to everyone in the Northern hemisphere.  Associate salaries are generally well-known and publicized.  All associates in a class make the same base salary, and that base increases in lockstep fashion as you become more experienced.  When you accept an offer to join a law firm, there is no negotiation of the salary.  Similarly, if you lateral as a mid-level or senior associate to another firm, your base compensation is set by what the firm is paying other associates in your class.

Does this mean there is no room for negotiation?  As to your base salary, most likely the answer is no.  But, what most entry-level associates and laterals leave on the table is a rarely-discussed topic:  the prorated bonus.

The prorated bonus is the little-known ugly cousin to the annual bonus.  Associates heap attention and fawn upon the popular annual bonus, even as that annual bonus inwardly laughs at how hard you may have had to work, and how much you sacrificed in order to claim it.  In the meantime, the ugly cousin sits by itself in a corner of the room, neglected and unloved.  Sure, it doesn’t look as attractive as the annual bonus, as it is only able to offer a fraction of the moolah and most associates barely know it exists.

But cast aside your assumptions and first impressions, and let’s take a closer look at the prorated bonus.  First, what exactly is it?  Like the name suggests, the prorated bonus is calculated pro rata based on the number of months you worked in a calendar year.  It applies any time you work only a portion of the year, instead of a full calendar year; namely, when you first start work.

As a first year associate, you almost certainly start work in September or October.  The bar exam ends at the end of July or beginning of August, and usually, law graduates go on their celebratory bar exam trip around the world afterwards.  Even if you keep it local, there needs to be time for some R&R, and to get ready for a new life and new job.  For laterals, unless you happen to make your move on January 1, you will also be starting work some time during the middle of a calendar year.

What most associates don’t realize is that, while you can’t really negotiate your base salary, law firms may have wiggle room when it comes to bonuses.  It never hurts to ask whether the firm would be willing to provide you with a prorated bonus if you meet a prorated hours requirement.  The worst that they can say is no, and often, you’ll be surprised at what they can do.

Here’s an example:  Lisa the lateral is a third year associate fed up with life at her current Biglaw firm.  She decides to move onto greener pastures, hires a headhunter, and lands a job offer at Biglaw2 firm.  Biglaw2 wants her start date to be July 1.  At Biglaw2, she would be eligible for an annual bonus of $20k if she hits 2,200 hours for the year.  Unfortunately, she’s starting work in the middle of the year, and it’s impossible to bill 2,200 hours in six months.  But what if she hits 1,100 hours in the six months that she’s at Biglaw2?  Shouldn’t she be entitled to a prorated bonus of $10k?

Sure, $10k doesn’t sound as glamorous as $20k, but she also would only have worked six months, instead of a year, at Biglaw2.  And $10k is real money, yet for whatever reason, most associates don’t ask for the prorated bonus when they begin work at a new firm.  They simply leave that $10k on the table.

But there are even more advantages to the prorated bonus.  First, it’s much easier to bill 1,100 hours in six months than 2,200 hours in 12 months.  Why?  The higher the billables, the more difficult it is to maintain that level over a prolonged, sustained period of time.  Think about it this way.  Have you ever billed a 300+ hour month?  Probably, if you work at Biglaw.  But have you billed 300+ hours a month every month for a year?  Doubtful.  That’s a 3,600 hour year.  Doable, but unlikely for many reasons.  The point is that you have a much better chance of making the prorated bonus than the annual bonus.

Second, billing high hours for a shorter period of time isn’t as onerous as billing high hours over a long period of time.  Let’s say Lisa slacked off between January and June because she knew she was leaving her first Biglaw firm, and she spent a lot of time researching firms, talking to her headhunter, and interviewing.  By July, when she starts her new job at Biglaw2, she’s recharged her batteries and is ready to go.  Sacrificing personal time for short spurts (and then being able to recharge) is very doable.  It’s when you sacrifice your sleep and other aspects of your life, day in and day out, seven days a week, 52 weeks a year, that these sacrifices become problematic.

If bonuses were paid out, on a prorated basis, every month, instead of in one lump sum at the end of the year, I’d select the prorated method in a heartbeat.  But law firms don’t do it that way.  Why?  That’s the topic for another post.

But I hope that, after reading today’s post, you begin to appreciate the value of the prorated bonus.  Suddenly, it’s no longer the ugly cousin, is it?

To bonus or not to bonus?  That’s the question for the day.  The answer, as you no doubt learned from law school, is “it depends.”

I’ll talk about two examples.

Example #1:  Your firm starts with a minimum of 2,000 billable hours and pays market rate.  They only pay out bonuses for hours above the 2,000 minimum.  Assume you are a senior associate with a base salary of $220k.  Let’s say if you bill 2,000 hours, you get nothing.  But if you bill an additional 400 hours, they give you a $20k bonus.  Worth it?  Let’s do the math.  For the first 2,000 hours, you are making $110 per hour.  But for the last 400 hours, you are only making $50 per hour!

It’s worth mentioning that, besides getting stiffed on the hourly rate (making less than half of your normal salary), the extra hours over 2,000 are the hours that (1) usually occur between midnight and 3 a.m. when you could be sleeping; (2) weekends; (3) evenings out with friends.  You get the point.  These are the hours that cut into the rest of your life, the hours that you need to socialize, eat, drink, sleep, run errands, and otherwise attempt to act like a normal human being.  Is making less than half your normal salary rate worth trading in those precious hours to sleep, or to go out on a date, or go see a movie with friends?  I hope the answer is a definitely NO!

Example #2: If your firm has a two-tiered track for those who wish to bill less but also earn less, or bill more and earn the market standard, which path would you take?  For example, let’s say the minimum billable requirement is 1,900 hours but if you work 2,000 hours, you get paid market rate.  Assume the difference between the two tiers is $30,000, and your salary is $190,000 without the “bonus.”  In short, do you take the $190k and work 1,900 hours, or go for $220k and work another 100 hours?

This should be a no-brainer.    At $190k for 1,900 hours, you are making exactly $100 / hour.  If you choose to work a mere additional 100 hours for $30k, you would be making $300 / hour, likely equal to or close to your billable rate.

Why do some firms give you such a large “bonus” for working a mere 100 extra hours?  If you are being paid your billable rate for those last 100 hours, you reason, then that means the firm isn’t profiting from it at all.  And you would be correct!  The system is set up so that the firm makes the same profit off you regardless of whether you elect to take the lower tier or higher tier.  They’ve calculated the hours and salary so that once you reach 1,900 hours, they’ve made the desired profit.  If you choose to work more hours, that’s your decision and it doesn’t affect the firm’s bottom line one bit.

But it certainly affects yours.  Only 100 more hours and you triple your salary for those hours.  In this case, it’s really a no-brainer.  Go for the “bonus.”

These are easy examples because I’ve used numbers that make it easy to see the relative worth of the bonus.  Sometimes, the numbers aren’t as clear cut.  Sometimes, the bonus is larger, and it requires fewer hours to get there.  For Example #1, if the bonus were doubled to $40k, would you do it?  400 additional hours for another $40k?  How about 200 additional hours for $20k?  The possibilities are endless.

The point, however, of this exercise is this:

(1) Think about the economics of your bonus before you decide whether you are going to “go for it” or not.

(2) Always calculate your base salary as an hourly rate, and compare that against your potential bonus as an hourly rate.  In other words, compare apples with apples.

(3) Understand that, the more hours you bill over 2,000, the more that time should be worth to you.  Those hours should, frankly, be worth more to the firm as well (if every associate worked 3,000 hours a year instead of 2,000, the firm could hire 50% fewer associates and save major bucks on overhead costs, staff, and other resources).  So make sure that you are being compensated accordingly.  If staff get 1.5x to 2x their base salary for OT, why aren’t you?

Frankly, in my opinion, most bonuses that require billing 2,200+ hours a year just aren’t worth it.  You’re almost certainly getting paid less than your base, for time that is certainly worth more.  Your secretary won’t work overtime for 50% or 75% of her base salary, nor should you.