David Giacalone has kept the conversation about alleged client concerns over associate bonuses at firms like Cravath going at his site, f/k/a, where I have replied in comments. My reply is also below in the extended entry if you’re interested.

I don’t disagree with most of what you wrote, particularly about value billing, which can be a ripoff in many circumstances, particularly ‘basic’ representation. Let me focus on one sentence in your post: "In the market for legal services, then, every "sane" client should very much care whether sellers are operating efficiently and savings are passed on to buyers."

That’s true and, as noted elsewhere, if you want to approximate that, look at PPP (and RPL), which clients can, and should, do for firms like Cravath. Compare that to the rates, billables and output and you can see if the pie is getting bigger or if someone’s stealing your pieces.

But associate bonuses are another story: associate bonuses do not represent how "efficient" the firm is or if the firm is passing savings onto the clients. Associate bonuses represent the extent to which partners are passing profits onto associates, a split that is irrelevant to the clients. Is that split relevant to the firm’s future fees and quality of services? Sure. But to see how — to see the balance between retaining and attracting the best partners versus the best associates — requires you operate at Bruce MacEwen’s level. That is to say, it’s micromanaging if done by a client.

If, at the end of the day, your lawyers — the partners, the ones you know and hire — take home $3 million a year, what more do you need to know about "efficiency?" The system is clearly extraordinarily "efficient." There are $3 million per partner in "savings" you are not receiving.

Let’s look at an actual Cravath client: IBM. Does IBM have recruiters every year at Yale Law and Harvard Law reporting back on the student reaction to Cravath? Nope. Does IBM have detailed records on every associate who has voluntarily left Cravath? Nope. Does IBM send its management throughout the New York City legal community year round to determine competitive new partner compensation? Nope. Does IBM spend hours negotiating with rainmaker partners at Cravath to keep them onboard? Nope. Does IBM perform detailed internal analysis at Cravath to maximize associate retention? Nope.

And why should they? It’s not their business. IBM knows what Cravath and its competitors charge, what IBM gets from Cravath, and, unlike most service providers, what Cravath partners take home on average. Why would they want to spoil the good information they have about appropriate pricing with a concern about the details of an internal transaction at Cravath that they only barely understand?

My point is: they don’t. They might as well ask about the cleaning service Cravath uses and if people turn the lights out every night. IBM doesn’t really care or, if they do, they’re wasting their time meddling. IBM knows that Cravath doesn’t set associate bonuses high out of a sense of charity, that Cravath would like nothing better than to make them all unpaid interns.

Partners care, since the associate bonus is, as described above, the direct split of profits between associates and partners, a split that cannot be billed to clients except through overall rate increases, the method of increasing billing most hated by clients (in contrast to more hours or higher value work). Frankly, unless the next PPP numbers show a dramatic drop, I think this was a big mistake by Cravath, particularly in blaming clients for the change. What better way to make your staff hate your customers than to say multiple unnamed customers complained about staff pay?

Finally, whatever the theoretical purposes of a year-end bonus, fact is that they had come to be "normal" at big corporate firms, particularly at a supposedly elite firm like Cravath. To me — and to many of the associates, federal clerks, and law students I’ve heard from — Cravath just announced it is no longer an elite firm capable of weathering any storm. Fair? Doesn’t matter. It’s reality.