Business of Law Firms
End of the short-lived bonus boom​

By Jake Rickman​

What do you need to know this week?

This week’s article in TCLA’s Business of Law Firms series looks at the rapid reversal of associate-level bonuses handed out by the top global law firms in recent months.

As reported by an FT article entitled "Lawyers’ six-figure bonuses dry up as job cuts gather pace”, by the start of 2021, the world’s largest law firms began offering unprecedented sign-on bonuses worth as much as $250,000 to attract lateral hires. This was precipitated by the surging deal activity that emerged on both sides of the Atlantic following market stimulation policies implemented by central banks to fend off a COVID-19-induced recession.

Kirkland & Ellis, the world’s largest firm in terms of revenue, led the pack, having offered certain midlevel associate hires a quarter of a million-dollar sign-on bonus. US firms Paul Hastings and Goodwin Procter offered existing staff referral bonuses ranging between $30,000 and $50,000 in exchange for successfully recommending new associates to join their ranks.

Similarly, an unnamed UK firm paid one of its associates a £225,000 retention bonus to stay on following the associate’s resignation whose salary was reportedly increased by the same amount when the associate agreed to stay on.

Finally, most firms paid their associates two separate one-off “special bonuses” to reward them for the surging revenue and earnings law firms generated due to the increased deal activity.

But sadly, what goes up must come down. Recruiters now report that in 2023, sign-on bonuses are almost non-existent, which is consistent with the cratering deal volume as businesses and financial sponsors retreat away from the market due to increased borrowing costs and macroeconomic uncertainty.

Why is this important for your interviews?

As a general rule of thumb, law firms are not known for paying the eye-watering bonuses common in investment banking and private equity. But from a general perspective, it is always helpful to gauge the associate-level hiring market and to spot trends. This short-lived cycle — from feasting to starving — while rather dramatic, demonstrates how recruitment in the legal sector responds to the business cycle.

Junior and midlevel associates are instrumental in executing the work that senior associates and partners generate. When deal volumes spiked from H2 2020 onwards, law firms scrambled to bulk out their transactional deal teams to keep up with the deluge of business that senior fee earners sourced. Law firms employed sign-on and retention bonuses to respectively recruit or retain these associates so that practice groups could stay competitive in a white-hot market.

As we should expect, as deal volumes have collapsed, transactional practice groups are over-deployed and therefore the recruitment market has retrenched.

However, as the FT article reports, some law firms are hopeful that activity will pick back up, perhaps as early as the third or fourth quarter of 2023.