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Bonus RoundWhat to make of those astronomical Supreme Court signing bonuses?

By Dahlia Lithwick
Posted Saturday, March 10, 2007, at 7:48 AM ET

OK, my friends who are struggling to pay your mortgage, put away money for your kids' college fund, wondering why the day-care lady earns more per hour than you do, and hoping duct tape and copper wire will hold the boiler together until spring, consider this (calmly, please): Later this spring, elite law firms will again be offering Supreme Court law clerks signing bonuses of $200,000 (last year's rate) or even more for their first jobs as practicing lawyers.

That will be $200,000 on top of a starting salary of $145,000 to $160,000. Which adds up to an awful lot of Pottery Barn sectional furniture for someone who is, on average, 26 years old and just two years out of school. As Chief Justice John Roberts pointed out recently, that $360,000 beats the heck out of the $212,100 he's taking home for, well, chief justice-ing the entire nation.

The so-called "law clerk bonus" is a one-way ratchet, it seems. In a bidding war between boutique appellate practices at the nation's fanciest firms, the bonus not only rises each year, but seemingly it does so exponentially. When it hit $150,000 two years ago, it was hard to pick myself off the floor. Thomas Goldstein, who recently started the Supreme Court litigation section at Akin Gump Strauss Hauer Feld, confirms that in the major markets, no large firm can expect to pay less than $200,000. "The only question," he says, "is whether it will be more."

With so many powerful firms competing for only 36 clerks, it's no surprise that the high court's graduating law clerks will soon be staring down the barrel of NBA-grade salaries. At which point the already puzzling economics of elite law firm cachet will have become truly incomprehensible.

What is it about three-dozen legal rock stars that justifies paying them so much? Former Acting Solicitor General Walter Dellinger, who heads the appellate practice at O'Melveny and Myers in Washington, says that while not all Supreme Court clerks make brilliant lawyers, and not all of his best associates were trained at the high court, "there's a very strong overlap with extraordinary talent." He adds: "One of the least appreciated things in the practice of law, is lawyering that rates even above truly excellent lawyering." And if you're working on billion-dollar cases, he says, the client is willing to pay more for truly excellent work. Dellinger, it should be noted, is a former Supreme Court clerk himself, from the pre-bonus era.

Sidley Austin Brown & Wood's managing partner, Carter Phillips, agrees that the Supreme Court's selection system does single out extraordinary young lawyers. Moreover, "they're used to working hard," Phillips says. "They can't get through their clerkships without putting in significant hours, so you know they can put in 2,200 hours at a firm." (Billable hours are the six-minute increments by which lawyers account for their time. If the studies are right, and you must spend three hours at work for every two hours you can bill, working 10-hour days you'd bill between 1,500 and 1,600 hours a year. Way low. Hence the weekends and takeout and no-life to get you up to 2,200.)

Phillips also notes that because of their work considering possible future cases for their justice, Supreme Court clerks have been exposed to a much broader set of federal issues even than their colleagues from the federal appeals courts. As a consequence, they don't have nearly the learning curve of other new associates.

But even Phillips acknowledges that the rates in this bidding war have his partners back in Chicago swallowing hard. "I think I'm the person who came up with this cockamamie idea in the first place," he confesses, noting that in 1986, when he had the clever idea of wooing some particularly fabulous Supreme Court clerks, the dollar amount in question was closer to $5,000 or $10,000. "I'll take the heat for creating this system. But I was never the market leader for driving it up."

Clerkship bonuses have apparently increased 3,000 percent in the past 20 years, while Congress still refuses to pass legislation to provide a 16 percent increase in federal judges' salaries. No wonder the justices are bitter.

Part of what's happening here is the extraordinary rise in lawyers' salaries in general. It's hard to understand why some young associates are now being paid around $145,000 and many partners bring in a cool million and more. The firms acknowledge that times have changed. Attrition rates are soaring. According to the most recent figures from the National Association of Law Placement, 37 percent of associates leave large firms within the first three years, and 77 percent depart within five years. Lawyers no longer stay at a single firm for decades. Young lawyers demand more lifestyle accommodation and want to bill fewer hours. It's taking them longer to make partner than it once did, and they resent that. And as demand for attorneys increases, the number of graduates from the nation's top 25 law schools has remained constant. In short, the demand for lawyers is increasing, and the supply wants their weekends back. The solution has been to throw more money at them—and raise rates for clients. Top partners can now bill $800 an hour or more for their time.

But even that doesn't fully account for the amount of money being thrown at Supreme Court clerks. There must be noneconomic factors pushing these numbers up.

The sheer bling factor is a part of it. On his legal gossip blog, Abovethelaw.com, David Lat tracks lawyer salaries with the glee most of us reserve for American Idol. And according to him, the hefty law clerk bonus stopped making any real economic sense several decimal points ago. Lat notes that these new associates just don't bill extraordinary hours; that boutique appellate practice isn't that lucrative; and a good many former clerks have academic aspirations. "They're billing 1,800 hours, not 2,500, and a lot of them are probably already working on their job talks," he says, referring to their sales pitches for the academic market.

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Dahlia Lithwick is a Slate senior editor.
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Remarks from the Fray:

When my first M.S. student graduated after having written a thesis under my supervision, at a public university, he was able to get a job immediately, at a salary 20% more than mine. Outrageous? Hardly. It happens all the time. These clerks are going to a different job than a SC Justice, who is after all a civil servant. We all make tradeoffs in our decisions about what to do with our lives, and while it may be personally bothersome that our apprentices earn more than we do (for doing something other than what we do), there's nothing wrong with it.

--RSA

(To reply, click here.)

Usual introductory materials: I am a relatively junior partner in a large law firm that actively competes in the Supreme Court clerk hiring market. Also, I did not clerk at the Court, but have many friends and colleagues who did.

On with the show...

(1) First off, the billables discussion in this article has little to do with the clerk bonus question but bears some comment. I am skeptical of the three hours worked per two billed statistic. The principal job for people working in a law firm is to work on stuff that clients pay for. (Set aside pro bono, which raises other firm investment issues.)

80% billable yield (i.e., 4 hours billed for 5 worked) is a reasonable target. Some midlevel associates who manage time well hit 90%, but even 80% means that a 2200 hour year equates to 2750 hours worked per year. That's 55 a week-no slacker job, but highly consistent with what many professional people, including government lawyers, work.

If you are at 66% billable yield (2 hours billed for 3 worked), then either (a) you aren't doing your job (not very likely) or (b) you are being very poorly managed (vastly more likely). Let me repeat:if you are working with partners that have you working 3000 hours a year to bill 2000, those partners are incomprehensibly incompetent managers. Stop reading this post and start finding new people to work with. Right now.

(2) Regarding the clerks, there is certainly some "bling factor," but it isn't in recruiting new associates. Smart law students who aren't Supreme Court clerks, or at least close in credentials, often avoid places that brag about their clerks. They know that they may end up as second class citizens.

The real bling factor is in winning business. Clients with large appellate cases are comfortable picking firms with clerks. If I am a GC, it is a risk reduction strategy with management--who is going to question my decision to pick a firm with many top flight clerks? Same for a board of directors. Furthermore, having clerks sends a signal that a firm has a top flight appellate practice. $200K isn't that high a price to pay if it helps land significant business.

(3) From the clerk's perspective, $200K is a lot of money. From the firm's perspective, it really isn't. Frankly, you could get all 36 clerks for $7.2 million and they could all be busts. Large firms (like other multimillion dollar businesses) make $7.2 million mistakes all the time. Additionally, bad associate hires costs at least 200K by the time they get weeded out through the system. By contrast, a clerk is a fairly safe bet even if he/she only hangs around for a little while.

(4) While you have to pay $200K to get the clerk, you didn't have to pay the clerk two years salary. Clerks come in as (at least) third year associates, bill as third year associates and, especially if they are in appellate-type groups, can perform as third year associates. Two years of training are skipped. So the investment is material, but it is a substitute for another type of investment.

(5) Clerk influence. This is vastly overrated by the public. Even setting aside the two year rule, Carter Phillips (discussed in the article) doesn't need a clerk's name on a brief to get attention. He can do that by himself. It's the skills that are expected to go with the clerk, not some nefarious influence, that drive the price.

(6) Lastly, attrition. Clearly it's not great if a clerk hangs around for 10 months and leaves. But it may not be a bad thing if the clerk leaves after three or four years. Firm gets the bling factor, generally gets a few years of top flight work, and ends up with a high placed contact somewhere. Finally, like other lawyers, some clerks who are very fine associates end up not terribly good partners. The legal and academic skills needed to become a clerk are not necessarily correlated with the management and business skills that make good partners. So departures may in fact be a very healthy thing for all involved.

In short, $200K seems like a shocking amount of money at first blush. It is debated at all firms, including mine. But when you consider you are getting one of only 36 people branded as cream of the crop, it's not surprising bonuses have reached this point. Indeed, they will surely go higher.

--LuxLawyer

(To reply, click here.)

(3/12)

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