Biglaw, Money, Partner Issues, Partner Profits

Which Firms Have The Biggest Gaps Between Their Highest- and Lowest-Paid Partners?

We have partner profits on the brain here at Above the Law. Earlier today, we wrote about a law firm that instituted a 20 percent holdback on partner pay — a move that was met with anger by some.

In that story, we noted the “continued expansion in the gap in power and pay between what we’d call ‘super-partners’ — partners in firm management and major rainmakers, who are often one and the same — and rank-and-file partners.” You can see this yawning chasm in the disparities in partner pay that exist within the same firm. As partner turned pundit Steven Harper has argued, partners aren’t true “partners” when they are paid and treated so differently.

New information from the American Lawyer shows how extreme some of these gaps between partners have gotten….

Responding in part to criticism from Harper, the American Lawyer decided to ask law firms about their partner compensation spreads, i.e., the ratio between the compensation of the highest-paid partner and that of the lowest-paid partner. Of the Am Law 200 firms, 111 responded. Here’s what Am Law learned, according to editor in chief Aric Press:

These are partner compensation ratios for the 111 Am Law 200 firms that chose to provide this information on our most recent Am Law 200 survey. The ratios are expressed as a multiple: Lowenstein’s multiple of 24, for instance, means that its top-paid partner received 24 times the compensation of its lowest-paid partner. Payouts to both equity and nonequity partners were included in the calculations. For Am Law 100 firms, the average multiple was 10.5, and the median was 9.3. For Second Hundred firms, the average was 10.5, and the median was 9.6.

A multiple of 9:1 or 10:1 sounds high when you think about traditional notions of partnership. But it sounds unsurprising when you think about the “star culture” of Biglaw today, with boldface name laterals getting offered millions to jump from one firm to another.

And the spreads go way higher than the average. Here are the ten firms with the highest reported spreads (conveniently collected by the ABA Journal):

1. Lowenstein Sandler and Vedder Price (a tie), with a compensation spread of 24

2. Fish & Richardson, with a spread of 23.79

3. Perkins Coie, with a spread of 23

4. Fragomen, Del Rey, Bernsen & Loewy, with a spread of 20.13

5. Chapman and Cutler, and Moore & Van Allen (a tie), with a spread of 20

6. Loeb & Loeb, with a spread of 19.83

7. Stevens & Lee, with a spread of 19.40

8. SNR Denton, with a spread of 19

9. Barnes & Thornburg, and Patton Boggs (a tie), with a spread of 18

10. Shutts & Bowen, with a spread of 17.70

A spread of 24:1 is incredibly high — and not exactly a good thing. For a helpful explanation of the perils of a high spread, see Sliced Too Thin — The Danger of Wide Partner Compensation Spreads, by Edwin Reeser, or The Lawyer Bubble (affiliate link), by Steven Harper.

Or see Dewey & LeBoeuf, which before its descent into bankruptcy had a spread estimated at 20:1 or even 25:1. To put that in concrete terms, the lowest-paid partners made $300,000, while the highest-paid partners were making $6 million or more.

Note also that the Am Law numbers are reported spreads. Some 89 firms, including some of Biglaw’s biggest names, did not disclose their spreads. I’d guess that some of the non-disclosing firms have spreads north of 24.

Here are the five firms with the lowest reported spreads (note the correction that caused Dinsmore to fall off the list):

1. Fitzpatrick, Cella, Harper & Scinto, with a spread of 3.23

2. Jenner & Block, with a spread of 3.60

3. Baker Donelson, with a spread of 3.75

4. Kenyon & Kenyon, with a spread of 4.23

5. Phelps Dunbar, with a spread of 4.70

Again, note the caveat about reported spreads. Some firms that did not share their spreads with Am Law may have lower spreads — such as Cravath, which has a reported spread of 3:1, or Cleary, which appears to be in the same range. Other firms said to have lockstep or near-lockstep compensation systems and low partner comp spreads include Davis Polk, Debevoise & Plimpton, and Wachtell Lipton (which has just a handful of senior partners off the lockstep).

These lockstep or near-lockstep firms, with low compensation spreads, have some of the highest partner profits in the business. Maybe there’s something to be said for their model — not just from the perspective of promoting teamwork and collegiality, but from a narrow financial perspective too. Maybe that’s why at least one of their competitors seems to be moving in the direction of lowering its partner compensation spread.

As we’ve stated before, Biglaw isn’t all about the benjamins. It’s about fulfilling and interesting work; it’s about relationships that are rewarding, both professionally and personally. And if firms focus on those other things — doing great work for their clients, and building collegial cultures — there will be more than enough money to go around.

What We Know, And Don’t Know, About Law Firm Finances [Am Law Daily]
Revealed: Compensation Spreads of The Am Law 200 [Am Law Daily]
These BigLaw firms had the highest spreads in partner compensation [ABA Journal]
Sliced Too Thin –The Danger of Wide Partner Compensation Spreads [JDSupra]

Earlier: Not A Popular Policy: Withholding 20 Percent of Partner Pay
A Biglaw Firm Plays With Its Partner Pay Scale
An Interview with Steven Harper, Former Kirkland Partner and Author of ‘The Lawyer Bubble’
Biglaw: It’s Not All About the Benjamins

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