Sullivan Bonus Babies Get Lift in Salaries As White Shoes Tap

Lost in the hum of daily routine deep in the Eighth Avenue beehive of white-shoe law firm Cravath, Swaine & Moore Feb. 13 was the insertion of pale-blue interoffice envelopes into the mailboxes of the firm’s 350-odd associates.

The spare memorandum inside contained news that might have set your average drone abuzz: They were getting $20,000 raises.

But the delivery—quaintly marked “personal and confidential”—was in fact the anticlimax of an increasingly public frenzy that has swept Manhattan’s elite law firms over the last two weeks.

It’s a bit of a ritual: One top-shelf firm announces a raise, and its competitors rush to match the new salaries. In the wider context of the recent upheaval, Cravath took a relatively leisurely 11 days to make its announcement, and so the news wasn’t really news.

The parity in salaries (bonuses, while mostly standardized as well, allow for a little more discretion) means that the salaries themselves become public knowledge, and associates begin to seem like lavishly compensated civil servants.

After this salary sprint, first-year lawyers will be earning $145,000 a year. (The last base salary raise, which was announced around this time in 2000, was led by Silicon Valley firms worried about losing associates to Internet start-ups, and bumped first-years from $105,000 to $125,000.)

California firms spurred the raise again this year. In the fall, the Los Angeles–based boutique firms Irell & Manella and Quinn, Emanuel, Urquhart, Oliver & Hedges raised salaries to $135,000. Gibson, Dunn & Crutcher, a national law firm also based in L.A., was the first large firm to follow their lead, and others, including Latham & Watkins, matched as well, though it excluded the firm’s New York associates, perhaps waiting for someone else to pull the trigger. (The firm later matched the higher New York salaries.)

On Thursday, Feb. 2, associates at Sullivan & Cromwell—whose partners earned an average of $2.35 million in 2004, the third-highest in the country, according to The American Lawyer—were informed of this raise. Or was it a raise? The memo reportedly said that the “increase represents a shift of that amount from the 2006 year-end bonus which you would otherwise receive.” Bonuses for first-years were $35,000 this year.

“It became pretty much wildfire news,” said Roger Meltzer, a partner at Cahill, Gordon & Reindel who chairs the hiring committee.

In an interview with The New York Law Journal that appeared the next day, Benjamin Stapleton III, a partner and head of Sullivan & Cromwell’s associates committee, took a lawyerly tack: “Total compensation this year could be more, less, or the same as last year.” He said the move was prompted by associates’ cash-flow issues, the concern that they were living paycheck-to-paycheck.

‘Cravath Matches. Memo in Hand.’

Meanwhile, on the “Greedy Associates” message boards on Infirmation.com, New York associates began posting in droves, trying to extract the latest information and weigh in on the developments. “Weasel words,” wrote one poster about Sullivan & Cromwell’s disclaimer. Several also took issue with remarks that Keith Wetmore, the chairman of Morrison & Foerster, made in the Law Journal suggesting that firms would have trouble matching Sullivan & Cromwell. They accused him of trying to talk down the market.

“I’m flattered if someone thinks my remarks can move markets,” responded Mr. Wetmore, who said that his firm would be responding to the new market salaries soon.

“WHAT WILL SKADDEN DO?” intensely questioned “Tibetan Monk.” There seemed to be no end to the teeth-gnashing.

In an interview with The Observer, Mr. Stapleton said that the goal was simply to spread the wealth throughout the year, not necessarily to raise overall compensation. “That will not be determined until year-end when the bonuses are determined,” he said.

At least one firm took Sullivan’s announcement at face value. On the following Monday, Feb. 6, the full partnership at Cravath held its regular lunch meeting in a conference room on the 48th floor. Sullivan’s salvo barely registered.

“Everybody looked around the room … nobody seemed to care very much about it,” said one person in attendance. “Because it was clear that Sullivan was just moving money around.” (Since 2000, Skadden, Arps, Slate, Meagher & Flom has been paying a higher salary and correspondingly lower bonus to match other firms in total compensation.)

For obvious legal reasons, the firms are incredibly cautious about communicating directly with each other about associate salaries. (“The issue there is antitrust. You’re not supposed to be colluding on salary,” said Eva Wisnik, the former director of recruiting for both Schulte, Roth & Zabel and Cadwalader, Wickersham & Taft, who now runs a recruiter head-hunting firm. “You use what sources you have, but you can’t just send an e-mail to a colleague asking.”)

But having heard about the memo from their associates on Thursday, on the same day that Cravath’s partners declined to parry with Sullivan, the management at Simpson, Thacher & Bartlett decided to match the $20,000 across-the-board increases Sullivan had announced. The chairman of the firm’s executive committee, Philip (Pete) Ruegger III, sent the associates an e-mail whose header may just as well have been “No Caveat Here.” “The bonus portion of your compensation will be announced at year-end as in prior years,” it read, using language that—given how many lawyers were involved in the decision-making—one can assume was deliberately vague and soothing.

Joseph Tringali, a co-chair of the firm’s personnel committee, wouldn’t elaborate on the partnership’s reaction to the Sullivan phrasing, but did explain that the firm felt pressure to match because “it’s sometimes difficult to get people in terms of total compensation rather than base salary.”

He added: “Because we make bonus decisions at the end of the year based on a variety of factors, we didn’t see the need to make a statement regarding that fact.” The memo stopped short of calling the change a raise, however, going with “adjustments to the base salaries.”

Davis, Polk & Wardwell and Milbank, Tweed, Hadley & McCloy announced raises on Wednesday.

That day, the executive committee at Cahill, Gordon & Reindel met for a regularly scheduled meeting.

“Once S&C does it, once Simpson does it, once Davis Polk does it, that’s really in our sweet spot; you’ve got to match,” explained Mr. Meltzer, who is also a member of the executive committee. Associates received calls from partners that night and the next morning; Mr. Meltzer spoke to The New York Law Journal the next afternoon.

“There’s a real interest in not being perceived as reluctant to go along with the market leader. If you wait a week or 10 days, it makes it look like you can’t make up your mind on what seems to be a relatively straightforward matter,” said a partner at one of the firms that acted swiftly, who was personally reluctant to be identified.

There was private agreement that, barring a disastrous downturn, this raise in base salary wasn’t just a re-allocation.

“It would not surprise me if total comp is higher,” said a partner at a firm that moved quickly to match Sullivan, but who was loath to contradict his firm’s official line on bonuses.

The field was getting crowded. Joined with Cahill in the Law Journal on Friday, Feb. 10, were Paul, Weiss, Rifkind, Wharton & Garrison, and D.C.-based Covington & Burling and Miami-based Greenberg Traurig (former home to Jack Abramoff), who raised salaries for their New York associates.

“Have you ever seen those Web sites?” Mr. Stapleton, of Sullivan & Cromwell, asked. “That’s the jungle drum.”

As a poster named “Dr. Octagon” asked: “So what big law firms HAVEN’T announced raises yet? Lets smoke em out of their holes, as W would say. Make an example of them.”

Reports—some more reliable than others—came in about pre-emptive non-announcements. “Shearman just announced that they would not be announcing yet.” (They matched Monday night.) Associates at Proskauer Rose were told to expect an announcement this week.

As firms were fingered, dissections of their announcements would quickly surface on the site: White & Case; Weil, Gotshal & Manges; Fried, Frank, Harris, Shriver & Jacobson; Cleary, Gottlieb, Steen & Hamilton; Debevoise & Plimpton, Cadwalader.

“I’m just glad S&C’s “cheap a$$ practices” are getting us all salary bumps!” a poster wrote on Friday morning.

But there was nothing from Skadden or Cravath, among others.

Until Monday at 2:15 p.m., when “right of first refusal” wrote: “Cravath matches. Memo in hand.”