We’re all very familiar with the average profits-per-partner figures that are published as part of the AmLaw 100 law firm rankings. But since they’re just averages, they do raise some obvious questions:
– What’s the average take-home pay for a typical Biglaw partner?
– How much do newly minted, junior partners earn, compared to the most senior or most highly compensated partners of a large law firm?
– How much can superstars with enormous books of business rake in?
Information that goes a significant way towards answering such questions appears in this fascinating article, by Andrew Longstreth for the American Lawyer. You should read the whole thing for yourself; it’s socioeconomic voyeurism at its best.
A few excerpts, and some quick thoughts from us, appear after the jump.
In taking a firm’s profits-per-partner figure (PPP) and turning it into an educated guess at an individual partner’s take-home pay, it’s important to know (1) the law firm’s “spread,” i.e., the disparity in compensation between the lowest and highest paid partners; and (2) the system by which the firm divvies up its profits (e.g., lockstep by seniority, “eat what you kill,” etc.).
The article begins with Cleary as an example:
Cleary Gottlieb Steen & Hamilton managing partner Mark Walker is old-school when it comes to partner compensation. He sees no reason to change Cleary’s seniority-based lockstep scheme, in which the spread between the highest- and lowest-paid partner is less than 3:1. It’s a no-hassle system — no long meetings explaining bonus decisions and no disputes among partners over credit for bringing in business. And it is the foundation of Cleary’s culture, Walker says, which emphasizes the collective over the individual.
Or take Cravath:
“We look at ourselves all the time,” says Evan Chesler, presiding partner of Cravath, a firm with a spread of 3:1 (and profits per partner of $3 million in 2006). “There’s not been any serious consideration to change our lockstep system.”
With a spread of three-to-one, and average PPP of $3 million — or $3,015,000, to be more precise — one possible set-up might involve the most junior Cravath partner making, say, $1.5 million; a midlevel partner making the average of $3 million; and a top partner making $4.5 million.
Partner compensation at shops like Cleary and Cravath, while high, is straightforward. Arguably more interesting are firms with large spreads — huge disparities between the top-earning partners and the most poorly compensated ones. Take DLA Piper:
At DLA Piper, for example, the highest-paid partner — product liability litigator Amy Schulman — earned $5.75 million last year, according to a DLA partner who spoke on background. Another partner, San Diego-based patent litigator John Allcock, made $5 million. But according to this partner, below those two, the drop is significant, with the lowest-paid equity partner making $425,000. Schulman and Allcock declined through a DLA spokesperson to comment on their compensation, but joint chief executive Francis Burch Jr. says that if the firm’s three highest-paid partners were not included, the spread would be around 7:1, not 13.5:1.
So even though DLA Piper is less profitable than many of the big New York-based shops, litigatrix Amy Schulman surely earns more than the top partners at Cravath and Cleary.
Longstreth concludes his article with the “cautionary tale” of Shearman & Sterling:
Last year Shearman increased profits per partner 19 percent to $1.65 million, but over the years it has not kept pace with its peers in the New York elite. In 2000 the firm ranked 13th in PPP; this year it ranks 22nd. During Shearman’s slide down the profitability chart, it has lost a raft of partners. Shearman asked some to leave, according to a former partner. But not all defections were planned, including the loss of such stars as antitrust partner Steven Sunshine to Cadwalader (he’s now at Skadden, Arps, Slate, Meagher & Flom); tax litigators B. John Williams Jr. and Alan Swirksi to Skadden; and asset management partner Barry Barbash to Willkie, Farr & Gallagher. As it lost ground in the profitability ranks, Shearman did not significantly adjust its 4:1 spread — and, says a former partner, lawyers with portable business realized that they could make more money elsewhere….
If firms continue to employ a narrow spread, the lesson is clear: Make sure the PPP stays high. If Cravath didn’t make so much money, would its partners stick around? “I don’t know the answer to that,” says Cravath’s Chesler. “I think there is more glue than just the money.”
But he hopes he doesn’t have to find out.
If you have actual compensation information for an individual Biglaw partner (like yourself or your spouse) that you’d be willing to share with us — for publication in ATL, but with the partner’s name redacted, of course — please email us (subject line: “Skaddenfreude”). Thanks.
Firms Hunting for Stars Re-Examine Partner Compensation [American Lawyer]