The current discussion regarding the decision by Dentons not to report its average profits per partner (“PPP”) to the American Lawyer is interesting. While I was at Greenberg Traurig, then-CEO Cesar Alvarez used to have a pithy statement on the whole PPP issue, along the lines of: The only thing partners really care about is “profits per me.” There is a lot of wisdom in that statement. In my experience it is true for existing Biglaw partners, potential laterals, and those (fool?) hardy associates aspiring to partnership.
At the same time, the popularity of the American Lawyer’s various charts and rankings can’t be denied. And PPP is one of the catchier columns on those charts. It is used as a proxy for determining everything from firm prestige, to strength of client relationships, to how well a firm is managed.
Savvy associates can and do use it to determine associate quality of life at a particular firm. Your firm has a blazing PPP and no big contingency windfalls feeding the flames? Good chance you are looking at a never-ending flow of “interesting work,” coupled with the partnership prospects of a diminutive drone buzzing around hoping to get noticed by the queen bee. In contrast, you might enjoy a better lifestyle if employed as associate #614 by a Biglaw 2.0 monolith, but you also run the distinct risk of making partner only to realize that the financial gulf between you and the “real” partners is a broad one….
By now, everyone knows that PPP is a number that can and will be manipulated by Biglaw firms. Dewey taught even the most trusting of Biglaw acolytes that lesson. But no one seems motivated to share the real pieces of information that would allow partners, associates, the Biglaw media, and pundits to do a better job of comparing how firms treat their partners when it comes to assessing “profits per me.”
At Greenberg, which had a closed compensation model, the lack of comparative compensation information, even within the firm, was hailed as a virtue. The premise was that each lawyer should do their best to contribute as broadly and deeply to the success of the firm as possible, and that performance would be rewarded over time. I am not sure about Dentons, but I know that Jones Day, amongst others, espouses the same beliefs. And part of me thinks that a closed compensation model probably makes the most sense for all firms that are not committed to a pure-lockstep model. It looks like the industry is heading in that direction anyway. Most firms can’t afford seniority-based pay anymore.
I personally know some very fine lawyers at Dentons. The firm boasts competent, dedicated attorneys at all seniority levels. I am also sure that the firm pays its rainmakers handsomely. On par with other Biglaw firms. Because what differentiates the elite lockstep firms from the rest of the pack is not so much how much top partners are paid. In fact, non-lockstep firms can and do overpay for top producers, in order to pry them from the lockstep firms. What differentiates firms is how many partners fall within touching range of any given firm’s reported PPP figures. At profitable lockstep firms, the answer is usually a fair percentage of the partnershpi. At less-profitable firms, the answer is usually not as many. When you are thinking in terms of “profits per me,” seeing your firm reporting PPP of $1.5 million dollars while you get paid $500,000 can lead to less than warm and fuzzy feelings. Unless you see a clear pathway to getting to the $1.5 million range. Optimism helps.
Ultimately, it is up to each and every lawyer to do as much digging as they can with respect to determining how they can best maximize “profits per me,” while accounting for quality of life and less measurable (but no less important) benefits like collegiality and practice group strength. Because PPP offers only a rough estimation of how a firm is performing, better metrics to evaluate are those like partner compensation “spreads” — the difference in pay between the lowest- and highest-paid partners. Most firms consider such information proprietary, unlike the publicly-disclosed PPP. The desire to protect such information speaks volumes about its importance. Or consider the value of having the American Lawyer rank Biglaw firms based on the total compensation of the lowest-paid partner — anyone with the title “partner” could form one list, with the other limited to equity partners. Those rankings would be quite informative. And quite telling of the true gradations between firms, at least with respect to the compensation afforded to service or junior partners.
In any case, I hope that the Dentons decision continues to spur discussion about the appropriate way for Biglaw firms to disclose their financial performance to the broader public. And their existing and prospective partners. As a boutique firm owner, I know how important financial transparency is between partners. But what works for a firm of three partners may not be what is best for a firm of three hundred. One thing that is for certain is that “profits per me” will continue to be the most important, but least discussed, financial metric used by partners at firms of all sizes. As will all things that are at least partially out of one’s control, the less you think about that figure the happier you will likely be.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique. The firm’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at firstname.lastname@example.org or follow him on Twitter: @gkroub.