The Significance
Recent changes in lateral strategy, compensation and multiple partnership tiers mark a complete shift for the legal industry in just a few years—remarkable speed for an industry that usually moves at a slow pace.
But not everyone is pleased. For one, some law firms, even elite firms such as Sullivan & Cromwell, say they aren’t going to make wholesale changes to follow the trend. And behind the scenes, other law firm leaders are nodding their heads.
S&C leaders, like others, point out some of the internal disagreements that may arise. “Telling another partner you are going to pay a lateral $20 million a year, there has to be a lot of infighting going on,” noted S&C co-chair Bob Guiffra.
He added that the firm sees other law firms moving more toward a corporate model and less toward a partnership model. “If you treat your partners like employees, that is what they are going to be,” Giuffra said. “They will no longer feel like owners of the firm. Employees come and go.”
Looking at the changes broadly, it’s often a zero-sum game in compensation adjustments, especially when demand and profits are flat. The more dramatic pay raises law firms make for the most valuable players, the more pay cuts they may need to make for others.
Meanwhile, the swift pace of adjustments makes it more challenging to plan for the long term, including making any plans for methodical shifts in operations, infrastructure, strategy and leadership. How can any firm make five-year strategy plans when it can’t predict the whims of the market tomorrow, including the latest pay packages to offer laterals?
The Information
Want to know more? Here’s what we’ve discovered in the ALM Global Newsroom:
- How Attorney Titles in Big Law Can Mean Everything, and Nothing, All at Once
- Ballooning Nonequity Tiers Will Require Law Firms to Manage Ranks Closely
- The Goldilocks Solution to Law Firm Growth: Large Group Liftouts Prove ‘Just Right’
- Paul Weiss, Seeing Record Year in Revenue and Profits, Plans Compensation, Partnership Changes
- Weil Revises Partner Pay Criteria, as Firm Plots Leadership Succession
- Cravath Enters Modern Era of Big Law Amid Regular Rate of Partner Exits
- Once 'Unheard Of,' $20M Partner Pay Becomes Standard to Meet at Davis Polk, Simpson Thacher
- Top Partner Pay at Simpson Thacher to Breach $20M
- Latham Mulls 'Super' Points for Partner Pay, as Industry Makes 'Tectonic' Comp Changes
- Sullivan & Cromwell Resists 'Radical' Partnership, Compensation Changes
The Forecast
Strategy changes over compensation, laterals and partnership structures are here to stay – and the market will continue to evolve. Most law firms will need to continually adapt, and they will be forced to reconcile with internal disagreements and disruptions in long-term plans.
Already, there are fewer and fewer firms like Sullivan & Cromwell that still have only one partnership tier and don’t regularly count on laterals for growth. Those firms resistant to change may be numbered. While S&C has the brand and profits to continue its unique approach, others up and down the Am Law 200 ranks likely don’t.
"You can aspire to the business decisions that firms like S&C, Cravath or even Kirkland & Ellis make," consultant Tim Corcoran told The American Lawyer. "But most firms don't have the raw materials in brand strength, quality and depth of lawyers and size.”
The pressure to adapt—or else deal with the fallout of lower profits and later on, partnership exits—will push more law firms to make big changes to their once-traditional approaches in compensation, laterals and partnership structures.
