Cravath kicks off US bonus season with reduced awards

Cravath Swaine & Moore has drastically cut back associate bonuses for its most junior lawyers as the firm this week became the first major US practice to reveal its hand, writes the New York Law Journal.

Second-year associates will receive a $7,500 (£4,600) bonus, down from $17,500 (£10,700) last year, according to a memorandum obtained by the New York Law Journal. Senior associates at the leading Wall Street law firm will earn $30,000 (£18,400), the same as in 2008, but first-year associates, who earn $160,000 (£98,000) a year, will not receive a bonus.

Legal observers said there is little surprise that bonuses are down in the current economy, which has seen many layoffs at law firms throughout the US and Europe.

The head of one major US law firm said he was "quite honestly surprised that a major New York firm was paying bonuses this year".

The partner said he would expect a negative reaction from clients on "any bonuses being paid in the current economy". He said he expected that a decision to pay bonuses "would have been deferred for some number of months".

The Cravath announcement kicks off the annual bonus season among New York law firms. Bonuses are closely watched as they are regarded as a measure of confidence in the world's largest legal market.

Cravath is typically seen as a market leader, part of a small group that also includes Sullivan & Cromwell, Skadden Arps Slate Meagher & Flom and Simpson Thacher & Bartlett.

"Everybody has been waiting for the first shoe to drop," said the chair of another large New York firm. "There is still an open question about whether the firms that have had a really good year will want to differentiate themselves, but I personally doubt it."

Top London firms with New York offices will be watching the bonus season closely as they typically broadly follow 'market rates' for their local associates. Slaughter and May last week announced it was to cut in half the annual bonus it pays to its lawyers.

The Cravath bonuses are down substantially from their high point in 2007, when the firm awarded regular bonuses of $35,000 (£21,400) to junior associates and up to $60,000 (£36,800) for senior classes, in addition to special bonuses of $10,000 (£6,100) for junior lawyers and up to $50,000 (£30,600) for more senior lawyers.

Last year, Skadden kicked off the bonus season in mid-November, paying no special bonus but keeping the regular bonus of $35,000 to $60,000 for junior and senior associates respectively. Cravath's announcement came a day later, with bonuses set at half of those of Skadden, with many other firms following suit shortly afterwards.

In a memo last year, Evan Chesler (pictured), presiding partner at Cravath, warned that associates "may receive significantly reduced or no year-end bonuses next year".

In 2008, Cravath saw gross revenue drop 13% to $532.5m (£322m), while profits per partner fell 24% to $2.5m (£1.5m), according to The American Lawyer.

Cravath did not announce any layoffs this year, but it has faced overstaffing. In June, the firm offered incoming associates $80,000 (£49,000) to voluntarily delay their start dates by one year. Rowan Wilson, a Cravath hiring partner, said in an interview last month that 48 accepted the firm's offer, while roughly 90 lawyers were set to start this year.

The New York Law Journal is a US sister title of Legal Week.