Bonuses for associates joining major US and UK law firms, which reached record highs in 2021, have dried up as the legal sector suffers from a sharp decline in dealmaking, according to the industry’s largest recruiters.
The six-figure sums paid to junior lawyers as sign-on or retention bonuses had all but disappeared by the end of 2022, said Michelle Fivel, a partner at recruiter Major, Lindsey & Africa, whose company places associates at many of the top 200 international firms.
“We are not dealing with a frenzied market like we were in 2021,” she said. “Firms then had to do it, they had no choice, because their competitors were doing it and they really were under the belief that they were going to lose candidates.”
Bonuses reached a peak during 2021, when Kirkland & Ellis, the world’s highest-grossing law firm, was offering $250,000 to mid-level lawyers with job offers elsewhere, according to one recruiter. Another firm offered sign-on bonuses of $100,000, Fivel said.
Two other top US law firms, Paul Hastings and Goodwin Procter, were offering referral bonuses of $50,000 and $30,000 respectively to lawyers recommending new associates at that point, amid a sharp rise in M&A activity as major economies came out of lockdowns.
But a rise in interest rates has led to a sharp decline in dealmaking, and dozens of job cuts at firms such as Silicon Valley outfit Cooley, Stroock & Stroock & Lavan, Goodwin Procter, Davis Wright Tremaine and Shearman & Sterling.
A survey by the Thomson Reuters Institute, released last month, found that US lawyers were billing fewer hours than they had in decades in the year to the end of November 2022. Data from Decipher Investigative Intelligence, which provides market insight for law firms, found that the number of associates moving to another firm was down by 14 per cent in 2022 compared with the year before.
London-based headhunter Chris Clark, director at recruiter Definitum Search, said they had “three associate deals in October, where the new firms may have previously bought them out of their bonus. This time around they all waited until the associates were paid their end of December bonus before resigning, therefore delaying their start.”
At the height of the hiring frenzy, one UK firm paid $250,000 to a star associate who was considering leaving for a US rival, Clark said, while the top US firms in London were paying sign-on bonuses ranging from $20,000 up to $120,000.
Another London-based firm paid an associate a £225,000 retention bonus when they resigned, Clark said, and increased their salary to the same amount.
At the same time, lawyers took home two rounds of “special” bonuses during 2021 on top of their usual year-end payouts, as cash-flush firms thanked associates for hard work during the pandemic, taking total earnings that year to a new record in many cases.
“The excessive bonuses and salary hikes seen in 2021 have fallen away as the market has cooled, for now,” Clark added.
Freddie Lawson, a recruiter at Fox Rodney, said: “Hiring has cooled off to what I would say normal levels and that includes the use of sign-on or retention bonuses. Whilst we have seen them used in exceptional circumstances, they certainly aren’t the norm now.”
While 2021 might have been an anomaly, sign-on bonuses were unlikely to be consigned to history, according to Fivel at Major, Lindsey & Africa.
“There is a sense that things could pick up at some point this year, whether [in the] third quarter or fourth quarter,” she said.