Associates wait for payday – but magic circle bonus levels are anyone’s guess
19 May 2008
23 October 2006
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12 July 2004
The magic circle has completed this year’s conservative round of salary reviews, and bonus announcements will soon be winging their way to associates’ desks.
Linklaters associates could be the luckiest in the magic circle – associates across the board could earn an extra 50 per cent of their base salaries (see table).
Close behind is Clifford Chance, whose one year-PQEs could win bonuses of up to £20,600 and three year- PQEs £35,800.
For two year-PQEs, Allen & Overy (A&O) could be the best, with a top bonus of around £30,000.
But comparing law firm bonuses on a like-for-like basis is virtually impossible.
For example, a one year- PQE at Linklaters could walk away with £30,000 more than an equally hardworking A&O assistant. But that same assistant could also be billing through the roof but end up getting paid less than an A&O assistant
who did not bill a single minute all year.
Then there are the nonperformance- related lump sum bonuses. For example, A&O pays £2,000 to all newly-qualifieds (NQs) and £7,500 to all one year-PQEs. At Linklaters all associates picked up a ‘profit-sharing bonus’ of around £2,500 last year. And at Clifford Chance most staff pick up a yearly gift of around £1,000. But when looking at the
bonus structure proper, each is confusing in its own special way.
One year - PQEs at Clifford Chance are limited to a maximum bonus of 20 per cent of their base salary, gradually increasing to up to 40 per cent when they hit four years’ PQE.
Freshfields’ bonuses do not work on a percentage of base salary, with associates instead qualifying for a capped maximum bonus of £20,000 for the first two years’ PQE and £35,000 at three years’ PQE.
A&O bonuses are linked to equity partner profit points, each worth around £30,000 last year. Two and three year-PQEs can earn a bonus equivalent of up to one equity partner profit
point, and those who hit associate level at four years’ PQE become eligible for the equivalent of two partner profit points.
At Linklaters there is no ladder at all and associates of every PQE level could gain an extra 50 per cent of their base salaries.
The way bonuses are calculated is even more confusing. Firms use a variety of criteria, such as individual performance, quality, overall contribution, departmental budgets, investment activity and pro bono engagement.
Linklaters UK HR director Caroline Rawes said: “We begin from a formulaic starting point at which people become eligible for a bonus. The elements that are taken into account in defining the performance are the individual’s appraisal rating and utilisation.
Groups will take that starting point and apply their discretion.”
“We don’t have a minimum hours thing,” Freshfields partner Tim Jones said. “Basically, the way we allocate bonuses is to look at overall contribution – not just chargeable hours, but also knowledge management, business development, pro bono and so on. We try to get a complete picture. Then we look at their appraisal gradings and go through a lengthy exercise of moderating the results across departments.”
A&O HR director Genevieve Tennant said: “We basically link it to the individual performance rating and then we also have an element that’s linked to exceptional contribution
someone might make to the business.”
The A&O bonus is not linked to billable hours and the value of a partnership profit point changes every year. The key, said Tennant, was to link the profitability of the business to the bonuses to allow senior level associates to understand how the business worked and have a vested interest in the success of it.
At Clifford Chance half of associates’ bonuses are made up of ‘quality of performance’, which relates directly to the career development appraisal. The other half can be earned by exceeding the billable hours target of 1,700, or with ‘investment contributions’ such as pro bono and other non-billable activities.
But even a clear system such as this can lead to Complications. A Clifford Chance one year-PQE, for
example, who wanted to collect the maximum billing hours bonus of 10 per cent, would have worked at least 2,200 hours in the previous year.
But the bonus due to billable hours in that case would translate to only around £13.50 for every hour worked above the 1,700 target. After tax this comes to around £8 per hour though the rate increases with seniority.
This raises the question of whether such a bonus actually motivates associates to put the hours in, or whether it is merely a token gesture that acknowledges the inconvenience suffered in a killer year.
By necessity, the bonus processes have to allow for a certain amount of discretion, but this also makes them hard to predict. The key, said Linklaters’ Rawes, is that understanding the system comes with experience.
“Our bonus has been in place unchanged for five years,” she said. “People know what they can expect.” Be that as it may, excluding Freshfields, no magic circle firm announces statistics or average bonus distributions to associates, nor publishes them externally. This is the crux of the Problem: how are associates expected to know that the maximum bonus at another firm is not just an unattainable fiction?