If Your Bonus Is Cut In Half This Year, What Will Happen When the Economy Really Takes a Hit Next Year?

Here is a recent article by Julie Triedman of The Am Law Daily blog titled "Following Pack, Davis Polk To Halve Bonuses".  Julie reports that more and more  Am Law 100 firms are reducing yearly bonuses in order to cut expenses during these difficult economic times.

Davis Polk & Wardwell has just announced that it plans to halve associate bonuses, following similar moves by other Am Law 100 firms announced over the last two weeks.

 

The firm says 2008 bonuses will range from a prorated $17,500 for first year associates to $32,500 for eighth and ninth years. Those amounts match the reduced rates announced November 24 by Simpson Thacher & Bartlett. Last year, bonuses began at $35,000 and topped out at $65,000. In a memo released to firm lawyers today at noon, the management committee thanked associates, and noted that the year posed a "challenging economic environment."

 

"We've always believed that bonuses should reflect general economic conditions, including the environment that our clients are experiencing," John Ettinger, the firm's managing partner, tells The Am Law Daily. "As is obvious, the economy faces a recession, liquidity crisis, and massive financial deleveraging."

 

By our calculations, the reduction should save the firm roughly $12 million–or about a 3 percent cost savings–based on last year's Am Law 100 reporting of revenue and expenses.

In addition to cuts in year-end bonuses, special bonuses are being dropped by some firms altogether.

Viewed year to year, the reduction is much larger. In addition to regular year-end bonuses last year, special bonuses added an additional $10,000 to $50,000 to the sum, depending on an associate's year. Those will not be given to the firm's 570 associates this year. The special bonus "was in recognition of 2007 being a boom year," Ettinger says. Skadden, Arps, Slate, Meagher & Flom and Cravath, Swaine & Moore also have dropped the special bonus.