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.
