Insight & Advice

Associate pay trends: bonuses for the best

In response to the recession, a new wave of bonus structures is sweeping the City 

Written by Christopher Clark, RedLaw Senior Consultant

The recession has caused many City firms to freeze bonuses to their associates. However, a number of practices have chosen instead to introduce reformed bonus structures. By doing so, they have been able to compensate associates whom they hold in high regard and prevent a deluge of departures when the market started to pick back up. 

While most firms have moved towards a more meritocratic bonus structure, some have now started to create unique offerings. Here are some recent examples of bonus structures that are new to the market.

Mid-Atlantic US firm

As soon as an associate hits 1,650 chargeable hours, £10,000 is paid. Another £10,000 is paid at 1,750 hours and a further £10,000 is paid at 1,850 hours, with a discretionary additional bonus top-up paid for more than 1,900 hours. This firm pay UK salaries that compete with the Silver Cirlce, so this attractive bonus structure is clearly an attempt to attract excellent candidates who do not want the much more intense Wall Street environment, but are looking for the financial rewards and culture of a US law firm. 
 

Mid-City firm

From January 2012, this law firm has employed a completely new bonus structure that is based on monies received from clients rather than monies billed to clients. Rather than being paid when a chargeable hours target is met, the bonus is earned when a certain level of monies is received from the client. By way of example, using an annual chargeable hours target of 1,500 and an associate charge-out rate of £250 per hour, the bonus would be paid when £375,000 has been received from clients. The thinking behind this is to reward associates who work flexibly but, arguably, just as hard as those associates who put in more hours.

This is the first such structure that I have seen in the London market. The argument is that associates on fixed hours can be some of the most productive and time efficient in the firm and, if an equal level of fees is being recouped for their work, why shouldn't they be appropriately rewarded? The goal is also to try to create more efficiency and transparency about how the business works, with associates now having a clearer understanding of the fees clients are paying for the work carried out.  
 

Leading international firm and leading West End firm 

A trend that has previously only been seen in smaller West End and boutique firms is now appearing in international firms: bonuses for work brought in by associates. As the recession eases, more and more firms are offering associates a bonus of 7.5% for any fees brought into the firm. 

At first, this option was taken by firms that wanted to take the risk of hiring senior associates with potential during the recession. Lower salaries were offered with incentives set to reward bringing in work, despite not being at the partner level. With associates being paid a reward of 7.5% of all a new client's fees for a period of 12 months following the client's introduction to the firm, this method has proved a strong incentive for associates to develop their own network. This is in addition to an average of 10-15% of base salary being paid as a discretionary bonus if associates work over 1,600 chargeable hours.
 

Final thoughts 

So, with three new avenues to explore, the question is, "What will firms do going forward?" I think that the way each firm chooses to structure its bonus system will be determined by the firm's culture and market place. For firms that don't need associates to bring in business and have a relatively young partnership in place, the simple "hours for bonus" structure might still suffice as we move into better times. Those firms that want to encourage associates to generate business and are looking to plan a smooth partnership succession really need to capitalise on the additional bonuses paid for work introduced to the firm. Not only will this attract the right type of associate, but those associates already at the firm may appreciate the more tangible rewards for the extra effort required to attend the various marketing and networking events that they might otherwise choose to forego.