Jumping In(House): Strings Attached

by lawshucks on November 29, 2010

When we called BigLaw bonuses a “pittance (relatively speaking)” compared to what inhouse counsel get at bonus time, that apparently led to some confusion.

Here it is all mathematical:

x + .1x > .6x + .25x

We never meant to imply that when starting off at a huge discount (the x and the .6x), total comp gets made up with the larger bonus (even when the inhouse bonus is 2.5x larger).

After the jump, we explain why bonus philosophies are so different and what that means for those affected.

We’ve said it before and we’ll say it again.

BigLaw wants you to leave.

The whole model requires lots of attrition (after the initial investment has been recouped) and a full pipeline behind that.

Since they want you to leave, bonuses aren’t meant to make you any happier than the minimum amount necessary to keep you around until that magical third or fourth year, when it’s more-efficient to replace you with a new associate.

We believe that the key motivator for bonuses isn’t associate satisfaction, but firm marketing.  Firms all want to be viewed as equal to their peers.  If bonuses were meant to improve associate satisfaction, you’d see a lot more firms actually paying for performance.

Inhouse, pretty much the complete opposite is true.  Companies tend to hire for the long haul.  They pay bonuses that are individually determined based on performance and that reflect the contribution to, and overall performance of, the business.

That is also why a significant component of an inhouse lawyer’s pay is “long-term comp.”  Sure, it’s supposed to give employees an opportunity to participate in the company’s growth, but if they really wanted to do that, they’d just give cash and a big ESPP discount.  No, they want to keep people happy and tied to the firm for the long haul.  Those grants don’t vest for five years in some cases.

Ever heard of a firm paying long-term comp?  We haven’t.

Take a look at the timing of bonus announcements and payouts. Firms announce and pay in a relatively short window at the end of the calendar year.  That means, come January 1, everyone is free to move about with very little cash left on the table.

When a larger percentage of base pay is tied up in bonus, that, too, is a handcuff.  It means that inhouse lawyers have to stay in their current jobs until the bonus is paid out because so much more of their total comp hasn’t been cashed yet.

Companies also tend to announce and pay bonuses late in the first quarter or early in the second.  On its face, that’s supposed to tie to earnings announcements from the previous year, but it also means that inhouse lawyers still have a big part of their total pay lagging.  And it means that if they stick around for the first quarter, they’re potentially giving up that quarter’s bonus if the next company doesn’t make it up in a signing bonus.  Not to mention the significant amount left behind in long-term comp.

So yes, inhouse bonuses are larger as far as the straight cash amount goes, and are a larger part of total cash compensation, but overall we all know the total cash comp is higher in private practice.  But they’re designed to serve different purposes.

  • In-house

    Don't be misled. MOST in-house counsel make much less in salary than firm associates make, and their bonuses (if they receive one, depending on the economy) are relatively small. It is only the GCs of the huge companies who make the big bucks that you read about, not the rank and file. My bonus will probably be about the same as 1 or 2 paychecks, and I have been practicing for 10 years.

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