Biglaw, Money, Partner Issues, Partner Profits

Buying In: Partner Paydays (Part 2)

Additional thoughts from the Anonymous Partner on partner compensation at large law firms.

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The recent survey on partner compensation conducted by Major, Lindsey & Africa, which I discussed last week, is full of interesting information. First off, I never really knew how many Biglaw partners there are. The answer? Around 75,000, which includes partners from all firms ranked on the Am Law 200, NLJ 350, or Global 100 in the last five years. Throw in another 1,000 or so partners who were Biglaw partners but left to form high-end boutiques — not included in the survey, but I consider them Biglaw partners since they typically work for similar clients — and you still have a pretty small number relative to the number of lawyers in the world. The figure of 75,000 amounts to less than two years’ worth of new U.S. law school graduates.

Very interesting, especially considering the forty-year-or-so age spread between active partners. Seriously, how realistic is it for any one law graduate (irrespective of pedigree) to think they will beat the odds and eventually make partner? So many things need to go right — it is amazing.

Here’s one surprising aspect of the MLA survey….

I was surprised by the response rate. Even though more than 2,000 partners responded, that represented just a three percent response rate. It should have been higher, in my opinion. I took the survey, and it just did not take that long. I know people are busy, but in terms of potential return on investment, it was a no-brainer. Answer a few questions and learn something unique about your industry — a good deal in my book. Apparently, the vast majority of Biglaw partners really don’t think like business people and prefer ignorance about their chosen industry. Thank goodness for the three percent.

I would argue, and have seen others make the point, that what partners today desperately need is more Biglaw compensation information. This includes information about what their fellow partners are making (for those in closed systems), how their compensation is set and what can influence its trajectory (for every non-lockstep system), and what their individual value on the open market is.

It has always been funny to me that Biglaw is very open about associate pay, but relatively opaque about partner pay. You don’t stop worrying about compensation when you make partner, and group metrics like profits per partner are pretty meaningless to an individual partner. Those lofty numbers don’t help someone make sense of their individual value relative to similarly situated peers. And non-practice group specific numbers are similarly unhelpful. For example, I don’t care what a M&A partner makes. Why? I have no idea what they do — so all I care about is that my firm’s M&A partners are profitable, don’t create conflicts for me, and bring cross-selling opportunities my way. That’s it.

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But I do care to know what my peers (whether practice area-wise externally, or similarly tenured internally) are making. Knowing that lets me know whether I am being over- or under-valued by my current firm and whether I am being compensated fairly for my current contributions. Most partners today can’t tell, so they default to grumbling about being underpaid. The survey bears that out.

Now individual firms have no incentive to share that information; it can only hurt. Lockstep elite firms don’t really lose partners, and don’t want to take too many laterals on, so there is no incentive for them to offer the outside world more than what is disclosed to the American Lawyer. Just ask Old School Partner — and remember his friends are still running Biglaw today.

Lockstep elite firms know that it would take a crazy Ferrara-esque package to lure away their talent. And it’s easy for them to say, once someone leaves for a guaranteed windfall, that they were not the kind of partner that such a firm wants around anyway. Esprit de corps runs high at the top level of Biglaw. And the corps marches in lockstep towards riches, with the average survey respondent at a lockstep firm reporting more than $1.2 million in annual compensation (with the highest percentage gains versus the 2010 survey — the rich are getting richer in Biglaw). But only two percent of respondents said their firm was pure lockstep. It really is a small slice of Biglaw.

At the bottom (measured by compensation transparency and amounts, not prestige or quality of firm), closed compensation firms celebrate their lack of internal transparency. They consider it a competitive advantage, and think everyone else should be similarly secretive (though I think they would except the Cravaths of the world from that — but they are not usually trying to poach Cravath partners). They want everyone else’s high performers, including partners from open systems. And the only thing they want those outside partners to know is that they could pay them the big money if they felt like it.

I have a bad feeling that as more Biglaw firms grow larger, merge, or otherwise shed any prior institutional identity, we will likely see more firms go to closed compensation models for partners. I would, if I needed to manage a whole boatload of partners who I have no hope of ever knowing personally. In that case, the numbers don’t lie, and if my fellow partners were willing to vest me with discretion to manage the firm, they should be willing to trust me on their compensation. Or agree that no partner or group of partners should have that power, and that non-lockstep Biglaw firms need professional outside help from compensation experts to divide the pie fairly while ensuring institutional integrity. While both options are likely to become more prevalent, you can bet we will see even more partner moaning. The closed compensation system partners apparently moan the most already.

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And firms in the middle, while likely more open internally, also need to be protective about things like partner compensation spreads and actual compensation per partner numbers. Look how long it took for firms to admit they had non-equity partners. Or actually disclose the number of equity versus non-equity partners they have. If Biglaw partner compensation will ever be transparent, the information will likely not come from firms. So partners need to rely on their fellow partners to be open and realize that almost everyone benefits from this information being public. Especially the younger generation. And especially before the vast majority of Biglaw firms go to closed-comp models for everyone. It has started at the associate and counsel level. It basically exists for non-equity partners. It is only a matter of time for everyone else, with very few exceptions.

That is scary, because one of the shocking results of the survey was how much better the average partner did in the open compensation systems. We’ll discuss that more in next week’s installment…

Feel free to email me regarding, or discuss in the comments below, your thoughts on the current partnership compensation situation, and what you thought of the MLA survey. In next week’s installment, I’ll continue digging into the numbers a bit…

Anonymous Partner is a partner at a major law firm. You can reach him by email at atlpartnercolumn@gmail.com.

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