Partner Pay Enters ‘A Whole Different World’

After 2024, “it’s a whole different world” when it comes to Big Law compensation, after firms this year stretched their pay spreads, increased bonus pools, moved to “black box” systems and added nonequity tiers or even created “super” tiers, among other changes aimed at luring and keeping the highest-caliber partners.

The trend of elite firms extending their pay systems “is absolutely a part of the bigger story of a rapidly evolving market, with respect to partner retention, partner recruiting, and a necessary adjustment to compensation models to accomplish both of those things,” Scott Yaccarino, a recruiter and co-founder of Empire Search Partners in New York, noted earlier this summer.

And don’t expect it to slow down in 2025 or even 2026, either. Among nearly 200 firms throughout the Am Law 200 and beyond, “more than one-third plan to make changes to their equity partner compensation models, either by stretching the spread of compensation or reviewing the criteria used to assess compensation levels” over the next two years, the 2025 Citi Hildebrandt Client Advisory stated, with the authors adding that they “also expect to see more frequent review of performance in this highly competitive market.”

According to some industry sources, $25 million to more than $30 million is now the top rung for Big Law partner pay. Most don’t believe it’s a bubble that’s going to pop anytime soon, and with demand and profits continuing, look for the lateral trends driving those numbers to accelerate in 2025.

Over the last two years, Cravath, Swaine & Moore created a nonequity tier, after breaking its lockstep partner pay model. Wilmer Cutler Pickering Hale and Dorr and Cleary Gottlieb Steen & Hamilton were the latest to create nonequity tiers this year. Meanwhile, Simpson, Thacher & Bartlett stretched its spread, with its highest-paid partners breaching the $20 million mark, while Davis, Polk & Wardwell also signaled an intent to lean into lateral competition, reportedly consulting with partners about how to restructure its pay system. For its part, Weil, Gotshal & Manges revised a pay system for equity partners that emphasizes the expansion of client relationships.

Paul, Weiss, Rifkind, Wharton & Garrison made waves at the start of the year by shifting to a nontransparent or “black box” system. And while Big Law hasn’t followed that firm en masse yet, transparency broadly seems to be eroding, with firms still making pay data accessible but not pushing it as readily or as freely as they used to.

Latham & Watkins also reportedly added a “super” points tier to reward its highest-billing partners. Fairfax Associates noted in a report this summer that kind of move was one-way firms had evolved their systems “to ensure that the top levels are less sticky and can respond to changes in a partner’s performance metrics.”

While most firms still look at similar variables to make partner pay decisions, such as originations and client management, they’re now emphasizing performance more, said Brad Hildebrandt, one of the authors of the Citi Hildebrandt client advisory.

Indeed, more law firms reportedly set clear earnings benchmarks, like generating at least $5 million in business, or they hold back partner points for not meeting collections and realization goals this year.

Bonus Pools

Hildebrandt said firms are making “much bigger use of bonus pools than ever before.”

A December report from Fairfax Associates also noted that more firms are adopting bonus pools and that firms that already had them are increasing both the size of the pool and the individual bonuses.

“While bonus pools historically averaged 5-8% of net income, they are now being stretched to 10-12% or more,” the report stated, adding: “Some firms’ bonus pools are as large as 25%.”

As part of Cravath’s move to modify its lockstep partner pay scale, the firm created a bonus pool funded by 15% of points from each partner, Law.com reported in 2022, dispersed at the discretion of firm management.

Overall, the changes in partner pay have resulted in larger spreads. Hildebrandt noted spreads have moved up from something like 3:1 roughly a decade ago to more like 10:1 or even 15:1 now.

According to ALM data, the top 100 firms increased their average spread between the highest- and lowest-paid partners from 9.8-to-1 in 2022 to 10.3-to-1 in 2023.

Meanwhile, competition and profitability were behind a “balloon” of income partners throughout Big Law, Hildebrandt said, including at firms that wouldn’t have imagined doing it as recently as a few years ago.

“The lateral market is driving that. You’ve gotta be able to pay more,” Hildebrandt said this month about some of the partner pay trends.

And firms have to be more flexible in how they pay people on the market, too. Some firms offered lateral partners fixed amounts of compensation as well as shares or units in the firm, with the guarantees giving laterals a cushion and the shares giving them more skin in the game when it comes to performance.

Either way, it illustrated one of the continuing trends of 2024: firms becoming less dogmatic in how they got money to top performers and laterals in order to keep pace in the battle for talent and scale.

Frank Ryan, global co-chair of DLA Piper, said in an interview this summer that there is, “without question” more flexibility on lawyer pay now. “There needs to be more flexibility in the profession to take advantage of the uniqueness of certain practices and individuals in the profession,” he said.

But as some partner compensation increases at the top end, partners may be asked to fork over more to the firm through capital contributions. The client advisory report stated there is “growing interest” among firms in increasing capital contribution levels, especially in an active lateral market.

“As firms look to grow, relying on their equity partners to fund that growth makes sense, especially as partner capital increases have not kept pace with net income growth,” the report stated. “Relying on partners to provide capital also creates more ‘skin in the game,’ especially important in an active lateral market.”

With partner pay skyrocketing to new heights, said Jon Lindsey, founding partner of recruiting firm Major, Lindsey & Africa, “there’s basically no firm that’s immune from market pressure, with very rare exceptions.”

Alisa Levin, co-founder of the legal search firm Greene-Levin-Snyder, this summer described the changes to law firm compensation as “tectonic.”

“It’s a whole different world,” she said.