Ambitious Attorneys Are Shattering Pay and Partnership Norms
Law firms are witnessing an unprecedented surge in partner compensation, with top-performing lawyers in Big Law firms commanding salaries that exceed $20 million annually with suggestions that that figure will be surpassed to as much as $30 million.
AbovetheLaw reported on Law.com’s report (this is what legal media do) when New York recruiter Scott Yaccarino reported on the constant big law pay rate growth. The gold standard ceiling of $20 million could well be heading north in a major way.
The average profits per partner in the AmLaw 100 firms rose by 44 percent from 2019 to 2023 which has permitted major law firms to offer greater compensation for high performers.
This trend has sparked a debate about whether such high pay is sustainable or indicative of a bubble.
The “Star Lawyer” Issue
Leading lawyers, recruiters, and observers largely agree that the rising pay for star lawyers is not a bubble but a reflection of soaring law firm profits and strategic diversification to hedge against economic downturns.
The Am Law 100 firms, for example, have increased the average equity partner pay spread from 9.8-to-1 in 2022 to 10.3-to-1 in 20.
The resurgence in demand for legal services, particularly in areas like large transactions and capital markets, has bolstered law firm revenues significantly. This demand has boosted firms’ with confidence to pursue aggressive compensation strategies.
This competition has led to significant pay hikes, as surveys and reports indicate, especially for partners who bring substantial business to the firm.
The lateral partner movement, where partners switch firms for better compensation packages, has intensified this competition.
Retention and Cultural Challenges
A significant pay disparity can create tension within the firm, potentially affecting morale and collaboration. According to senior recruiters, the risk for partners who receive less compensation could lead to feelings of being undervalued and lead to dissatisfaction and possible departures.
The big money lateral moves, or ‘partner poaching’ that we report on regularly, like the move by Neel Sachdev to Paul Weiss in London (pictured) and by Clearly Gottlieb in New York.
Partners may leave for firms that offer better compensation packages but can also create a cycle of constant churn in talent making tough decisions, as Bloombergs reported.
Additionally, firms must balance rewarding top performers without alienating other partners, which can be a delicate management challenge.
But the big money changes also introduce new business models for law firms’ compensation structures.
Firms are increasingly adopting more flexible and performance-based compensation models, often including the use of super points or bonus points to reward exceptional performance without permanently inflating base salaries.
These business models allow law firms to adjust compensation based on yearly performance metrics, providing a more sustainable approach to partner pay.
Compensation strategies are increasingly emphasizing business generation and client origination as a key objective and so the rainmakers are now affecting the new compensation arrangements as they expand revenue credits to recognize various contributions to client relationships, such as client responsibility and matter management.
This shift aims to encourage collaboration and the development of client work across multiple practices within the firm – providing lawyers with major opportunities and law firms with equally major opportunities to push their business growth – but with the subsisting risks of maintaining workplace cultures that help build business happily.
Firms must carefully navigate the implications of widening pay disparities to maintain a cohesive and motivated partnership. Maybe that is an objective that is easier said than done.
