I like talking about partner compensation so much, I wrote a three-part series on the topic. It was nice to hear from Jeffrey Lowe, the Global Practice Leader of Major, Lindsey & Africa’s Law Firm Practice Group and the brains behind the MLA partner compensation survey, who graciously expressed both his enjoyment of my treatment regarding the survey results and an invitation to contact him directly with follow-up questions.
In response, I proposed a written email interview, which you can read below. Thanks again to Jeffrey for his yeoman’s work on the survey, and his willingness to offer some additional commentary on the always scintillating subject of partner pay….
(By the way, on that subject, Am Law just released new data about non-equity partner compensation. Look for more commentary on it in these pages.)
A quick word on interview format: the questions are mine, the answers are Jeffrey’s, and his answers are followed with some brief additional commentary from my end (in parentheses). Also, it’s worth noting that prior to founding MLA’s Washington, D.C. office 10 years ago, Jeffrey was a partner with Hogan & Hartson, where he practiced for nearly 13 years. So he possesses a deep and multifaceted understanding of partner compensation, as both a legal recruiter and a former law firm partner.
AP: Why are more people not interested in really finding out what partners at Biglaw firms actually make in your opinion?
JL: It’s always puzzled me that there isn’t more data out there. I think part of the reason is that it’s just a very personal thing to ask someone. Couple that with the fact that lawyers as a group are somewhat paranoid to begin with, and there you have it. When we kicked off our first Partner Compensation Survey in 2010, it was critically important for us to be able to communicate very clearly to partners that Major, Lindsey & Africa would never know which partners completed the Survey or which firms participated. We were very pleased that nearly 1,800 partners participated in 2010, and, this year, partnering with the American Lawyer’s research arm, ALM Legal Intelligence, over 2,200 partners responded to the Survey. I think partners have wanted to know the data for a long time – I just think nobody has ever asked them, at least not on such a large scale and in a manner that ensured their confidentiality.
(AP: As I mentioned in my prior piece, I took the survey without hesitation. And I have yet to come up with a valid reason, other than apathy, for other Biglaw partners not to have participated. That said, it is good to see that participation has gone up, and I anticipate a greater response rate from whomever is still a Biglaw partner in 2014. In terms of lack of data on partner compensation generally, I think the continuing movement to closed comp systems and more centralized Biglaw governance have increased the average partner’s insecurity regarding compensation — resulting in more curiosity in how everyone else is doing.)
AP: What was the most surprising thing to you about the survey results? As I wrote, I thought the spread between open and closed comp shops was very important.
JL: I think the open versus closed comp differential was very eye-opening, as was the growing spread in average compensation between equity partners and non-equity partners ($896,000 versus $335,000). At two-tiered firms, it really has become a case of the haves and the have nots, and I think it’s only going to get worse. And, while it’s not surprising, I think the results clearly show that now more than ever, it’s all about originations. If you want to have any control over your destiny, you absolutely need to be developing your own client base. Finally, I think it’s interesting that in both 2010 and 2012, nearly 40% of the respondents pointed to cronyism as the single biggest factor in their dissatisfaction with compensation. Clearly, a very large portion of law firm partners feel that there is a fundamental lack of fairness in their firms’ compensation schemes.
(AP: For better or worse, I agree that the spread between the haves and have nots at two tiered firms will get worse. Not in the sense that Biglaw non-equity partners will see incomes slip under $300,000 a year for the most part, but more that equity partner pay will soon average over $1 million. In short, the days of a service partner clearing $650k are essentially over, except in lockstep systems.
Two more points from Jeffrey’s very insightful answer. One, to use a chess analogy, if you want as a Biglaw lawyer to be anything other than a pawn, you need originations. Preferably originations that are growing, though even rainmaking partners can find themselves a king one year, and a bishop the next. As Biglaw firms become more short-term focused, the changes will come faster and faster. Again, goodbye to steadily increasing compensation guaranteed for Biglaw partners (with rare exceptions, mostly at lockstep firms). Second, cronyism is rampant at closed-comp shops, and increasingly common at open comp firms as well. It will only increase, as rainmakers gain more clout. Based on Jeffrey’s analysis, we can expect to see even more Biglaw partners expressing dissatisfaction about how their firms pay them.)
AP: Do you agree that we are more likely to see Biglaw firms go to closed-compensation models for partners? And is there any chance that a non-lockstep firm currently will convert to a lockstep model?
JL: I’m not so sure that we will see more firms go with a closed compensation model, for a number of reasons. First, I believe that most partners overwhelmingly prefer an open compensation system. Lawyers like transparency, and seem particularly interested in measuring themselves against their peers, even if it sometimes leads to conflicts over relatively small amounts of money. Second, as you noted above, the empirical data seems to indicate that lawyers in closed compensation systems tend to make less than partners in open systems. Finally, the data also shows that partners in closed systems seem materially less satisfied than those in open systems. I think closed systems make a great deal of sense from management’s perspective, but I am not so sure that partners will be quick to embrace them.
As to non-lockstep firms converting to lockstep, I’m just not sure there will be support, especially if the firm in question has relatively young high producers. Switching over to a lockstep system would likely mean they would have to forgo higher compensation in their early years with the expectation that they will make it up on the back end, and I just don’t think people will be willing to do so in this era of uncertainty. Similarly, moving to lockstep could also be problematic for senior-level high producers whose current compensation would exceed the top of the lockstep — I can’t imagine that switching would be attractive to them. And while some of these issues can be dealt with grandfathering provisions, the very nature of those discussions can tend to further divide people.
(AP: I appreciate Jeffrey’s analysis here, but do have a sense that younger partners such as myself have less confidence that the model will remain basically static. We have seen too many firms change too quickly to assume that even currently open compensation firms will remain so. Especially as Jeffrey concedes that “management” — the increasingly powerful Biglaw force — tends to look at closed compensation systems approvingly. We will see. On the “firm going lockstep” point, I think Jeffrey is right, but I would love to see a non-lockstep Biglaw firm join the lockstep ranks.)
AP: In your opinion, do Biglaw partners make too much money, and is partner compensation sustainable at current levels?
JL: I think the market is pretty good at determining economic worth, and for every Biglaw partner that generates $10 million in billings and earns several million dollars, there are twenty or thirty who do not. Law practice is a grueling profession, and if some are able to be paid handsomely for it, I don’t think people should begrudge them those amounts. And I think the results of our compensation survey also show that many Biglaw partners, especially non-equity partners, don’t make nearly as much as some might suppose.
I do think the compensation will be sustainable for most of the elite firms, but I think there will continue to be significant pressure on virtually everyone else. Clients simply don’t accept annual rate increases anymore – they’re much savvier now – and some of the new delivery models of legal services are changing the game entirely. Clients are also expressing quite loudly that law firms need to provide more than just service, but rather true “value.” They don’t mind paying for the big, important matters, but I don’t think they will continue to utilize Biglaw the way they historically have for less important issues.
(AP: “Buying In” to Biglaw is just riskier nowadays, even for partners.)
AP: Would you agree or disagree with my characterization of partner compensation (for non-lockstep partners) as a career long game of Chutes & Ladders? If so, why?
JL: I agree. It’s been pretty obvious over the last twenty years or so that the notion of relatively stable compensation was eroding. Firms face enormous pressure to meet budget and “PPP” goals, and have increasingly moved to compensation plans that have a relatively short term focus in how they reward (and punish) behavior. I really don’t see that changing, at least not in the near future.
(AP: Have fun playing the game, everyone. I know I am.)
Thanks again to Jeffrey Lowe for taking the time to respond to my questions — and, of course, for his invaluable contribution to Biglaw via the MLA survey. Once again, if there are any other Biglaw personalities who would like to be interviewed, please just email me.
What does everyone think about Jeffrey’s insights? Anyone have any suggestions for how to improve the survey? Let us know in the comments, or email me…
Anonymous Partner is a partner at a major law firm. You can reach him by email at [email protected].