Bonus Spike Sparks Law Firm Competition Amid Return to Office

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As law firms plot post-Labor Day return-to-office plans, the legal industry faces other headwinds as practices compete for top talent.

Some of the biggest law firms are offering bonuses above $100,000 to keep their top lawyers, according to Neda Levy, a partner at executive search firm Rhodes Associates, which places C-suite legal counsel candidates into real estate companies. 

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“Law firms are upping the ante,” Levy said. “It’s not just, ‘Here’s more money,’ but now they’re thinking, ‘OK, what do we need to do to retain this talent?’ and they’re offering even more perks.”

The National Legal Sector Benchmark Survey Results released by Cushman & Wakefield earlier this year indicated that “significant” spring bonuses reinforced that compensation remains a major driver in retention efforts. However, the report also notes that a third of associates polled indicated a reason they stayed with their current firm was a flexible work arrangement. When asked how they were recruiting associate candidates differently than in past years, law firms indicated offering more work flexibility to support work/life balance.

Margaret Poster, executive managing director and legal business expert at C&W, who co-authored the report, said law firm bonuses have been spurred by a boom in revenues in late 2020 as practices benefited from savings during the pandemic on marketing, travel, office expenses and operations. She noted that bonuses typically offered in December or January have also been given out by the biggest firms during the spring, given the strong demand for talent, especially at the associate level.

“Law firms did extremely well and they ended up being very busy and, as a result, the demand for talent has intensified almost more than ever and that continued into 2021, where business activity picked up tremendously as well,” Poster said. “They paid special bonuses and that was followed shortly by an increase in base compensation for associates as well, and that is as clear an indication as you can get that the war for talent is intense.”

Levy said the higher compensation offered at law firms generally does not include expectations for more time in the office, but stressed that some real estate firms, particularly in proptech, have responded by offering their attorneys more remote working options to try and attract transaction attorneys. She said this dynamic, coupled with some additional benefits like extended vacation time or more flexible office hours, has added more barriers for real estate companies’ in-house counsels seeking to hire transactional attorneys to their practices to keep up with heavy deal activity.

“Attorneys who are caregivers are going to value that flexibility more than attorneys who may not have other caregiver obligations,” Levy said. “I think for a lot of attorneys who are interested in going in-house, that flexibility does factor in for them and compensation is not the end-all, be-all.”

While the bonus flurry was sparked largely by law firms losing some attorneys last year from relocations, Poster said they are not linked to expectations of working in the office full time. Most law firms are opposed to attorneys working 100 percent of the time remotely and want them to reside within commuting distance, but most practices are approaching return-to-office expectations “very carefully” because of the fear of losing talent.

“Our survey results showed that associates clearly would like to retain some of the flexibility that they had during the pandemic to be able to continue to work remotely, at least one or two days a week,” Poster said. “At the same time, both clients and firm leadership are saying they think the firm functions better when people are in the office more of the time, so firms have approached it differently in terms of how strongly they word their return-to-work expectations, the policies they set, whether it’s an absolute mandate, or whether they’re leaving it up to individual attorneys to use their best judgment.”

Terri Adler, managing partner at Duval & Stachenfeld, a Manhattan-based practice with around 50 attorneys, said she has matched the big firms in dolling out spring bonuses this year. She said in addition to competition from other firms, the bonuses are also an important incentive to keep top talent on board, including those who might otherwise decamp geographically.

Adler said her firm is planning a return to the office post-Labor Day, with expectations that attorneys are on-site at least four days a week, and first- or second-year employees coming in a full five days. She said that while COVID showed that effective legal work could be conducted remotely, the firm also realized how important collaboration is in the office.

“There are moments that happen with some frequency, where you just need to grab somebody and pull them into your office, and brainstorm or jump on a call, or have some immediacy that relates to marketing to deal work to firm management issues,” said Adler, who has worked from her Manhattan office since September 2020. “By being in the office, I had more opportunities to engage with clients, more opportunities to go to lunch with people and connect, and people were eager to see each other. So, I think it’s a real advantage for people who are in the office, because they’re getting opportunities, either as partners or even as associates, that some of their peers who are working from home may not be getting.”

Jeffrey Schwartz, a real estate and managing partner at Schwartz Sladkus Reich Greenberg Atlas, has implemented a phased-in, back-to-the office approach for his 85-person, Manhattan-based practice: starting with two days a week this past March; three days a week in June; and culminating in full, five-day weeks after Labor Day.

Schwartz, who worked with a consultant to conduct surveys and focus groups about people’s concerns, said he is a firm believer that lawyers working in the office full time are important for culture, especially when working with younger lawyers.

“Just being able to speak to people when you want to get work done, and having that type of continuity and your ability to talk to someone at your fingertips, as opposed to sending them a text and trying to track someone down, is important,” said Schwartz of the advantages of being back in the office.

“Yes, everything can be electronic, but I still go to a file drawer and find it much easier to pull something out, look at it, and — with younger lawyers — to be able to explain to them what to do, and walk by their office and hear them say something that maybe could be elaborated on or talked about, or what they are doing or not doing. I just think everything about being in the office is better,” he added.

Schwartz said he is monitoring trends from the highly contagious Delta variant that has caused COVID-19 cases to spike globally and may adjust plans. He said nearly all of the firm’s staff has been vaccinated and those who haven’t will need to wear masks.

Cushman & Wakefield’s Poster said striking that proper balance with return-to-office expectations is a challenge across all industries, including law, in terms of pushing for mostly in-person work while also allowing some room for flexibility. She said that while Morgan Stanley’s aggressive back-to-office strategy may influence the law sector, most firms would likely allow attorneys to work from home at least one day a week, with best practices emerging over time.

Morgan Stanley Chief Legal Officer Eric Grossman sent a memo in June to law firms urging them to have lawyers and employees return to the office as a way of improving client service.

“When you have a big investment bank, like Morgan Stanley, where the general counsel came out and said, ‘We will not look favorably upon firms that have their attorneys continuing to work from home,’ that sets the tone and an expectation that firms pay very close attention to,” Poster said. “There’s a lot of nuance in the way that firms are wording their expectations and setting their policies, but I would say that very few firms are saying we expect all attorneys to be in the office five days a week and they recognize that that flexibility is something that’s manageable.”

Andrew Coen can be reached at acoen@commercialobserver.com.