Nov. 21 (Bloomberg) -- Salaried lawyers at Cravath, Swaine & Moore, the second-most profitable U.S. law firm, will receive as much as 73 percent less in bonus pay this year, with a maximum bonus of $30,000, about $80,000 less than some got in 2007.

Cravath, based in New York, is giving its associates bonuses of $17,500 to $30,000, based on experience, four partners told the firm yesterday in a memo obtained by Bloomberg News. Last year, the firm opened bonus season for lawyers in New York with awards of $35,000 to $60,000, plus so-called special bonuses of $10,000 to $50,000.

“I’ve been practicing for 33 years and this is the most significant economic downturn I’ve seen,” Cravath presiding partner Evan Chesler said yesterday in an interview. “Our clients, corporate America, are really experiencing unprecedented conditions. We have to be cognizant of the world we live in.”

Dozens of law firms, including New York-based Cadwalader, Wickersham & Taft and White & Case, have fired lawyers in the past year as the economic downturn affected practice areas that rely heavily on financial institutions. At least two law firms, San Francisco-based Heller Ehrman and Thelen, have collapsed from a lack of business.

While Chesler said Cravath wanted to reward its lawyers so as to remain competitive in recruiting and retaining talent, the firm must address “the reality of the economy we’re in.” The firm awarded special bonuses in 2007 after two “extraordinary years,” the firm said in the memo. Until last year, Cravath hadn’t awarded special bonuses since 1999.

Healthy Practice Areas

Some practice areas remain healthy despite the ailing economy. Top-tier New York firms advising on mergers-and- acquisitions haven’t fired lawyers in the recent financial crisis, according to Bloomberg data. That group includes Cravath; Davis Polk & Wardwell; Wachtell, Lipton, Rosen & Katz; Sullivan & Cromwell; Simpson Thacher & Bartlett; Cleary, Gottlieb Steen & Hamilton; and Skadden, Arps, Slate, Meagher & Flom.

“I can’t foretell the future,” Chesler said when asked if the firm would have to fire attorneys. “We don’t have any plans to lay anybody off.”

Cravath redeployed “lots of lawyers” from slower practice areas to busier ones to compensate for the downturn, he said.

“Business will not be at the same level as it has in the previous years,” Chesler said. “We represent underwriters of securities, and no one’s underwriting securities. We represent lenders, and there’s no lending to speak of going on. Our litigation practice is busy. Our mergers and acquisitions practice is busy. We have areas that are busy.”

Crisis-Related Clients

Cravath has advised several of its financial clients in matters stemming from the credit crunch and subprime mortgage crisis. It represented the independent directors of Fannie Mae when the U.S. government placed it in a conservatorship; the independent directors of Merrill Lynch & Co. in its sale to Bank of America Corp., and the board of Morgan Stanley in that company’s conversion to a bank holding company.

The law firm is also advising Credit Suisse Group AG, a creditor in the bankruptcy of Lehman Brothers Holdings Inc., the largest-ever in U.S. history.

Another effect of the current crisis is that Cravath won’t raise its billing rates in 2009, the firm said in the memo.

“The economic downturn has severely affected our clients,” Cravath said. “They are under strong pressure to cut costs dramatically, and every week brings new announcements of unprecedented numbers of layoffs. Under these circumstances, we believe it would be irresponsible and an unacceptable hardship on our clients to raise our billing rates.”

Uncertain 2009 Bonuses

Bonuses are also uncertain for next year, according to the memo.

“Given the uncertainty of the economy and the business climate going forward, we will not be able to address the issue of whether there will be any year-end bonuses in 2009 until this time next year,” the firm said in the memo, signed by Chesler and three partners, Scott Barshay, Sandra Goldstein and C. Allen Parker.

Skadden opened the 2008 bonus season on Nov. 19 by awarding its salaried lawyers the same bonus it gave last year, without a special bonus. Skadden, which declined to disclose the bonus amounts, and Cravath both pay first-year associates $160,000.

Cravath had profits per partner of $3.3 million in 2007, according to the American Lawyer, a trade magazine. The firm’s clients include International Business Machines Corp., Bristol- Myers Squibb Co., Credit Suisse Group, Time Warner Inc., Vivendi and Xerox Corp.

New York’s Wachtell, Lipton was the most profitable firm, with partners making $4.9 million on average.

To contact the reporter on this story: Lindsay Fortado in New York at lfortado@bloomberg.net.

Last Updated: November 21, 2008 11:26 EST