But, to be fair, there certainly are things to complain about when it comes to profits per partner. For example, PPP is an average that can sometimes conceal a great deal of variability. It tells you exactly what its name suggests — average profits per partner, i.e., total profits divided by the number of partners – but it doesn’t tell you what the average partner takes home in a year.
To get a better sense of compensation for an average partner, we’d need to know the “spread,” i.e., the ratio between the compensation of the highest-paid partner and that of the lowest-paid partner. Thankfully, there is (some) information on that.
How do partner compensation spreads look these days at leading law firms?
As noted in Morning Docket, the American Lawyer recently released the results of its survey of partner pay spreads at the Am Law 200 firms (the nation’s 200 biggest firms, ranked by revenue). As some of you may recall, we covered this survey last year too.
For this year’s survey, Am Law provided the following overview:
At Perkins Coie, the range from most compensated partner to the least was 23 to 1. At the other end of the spectrum, the range at Fitzpatrick, Cella, Harper & Scinto was 3 to 1. That’s what we learned in our latest survey of compensation spread, with 107 Am Law 200 firms responding. Payouts to equity and nonequity partners are included in the calculations. For Am Law 100 firms, the average range in compensation was 11.1 to 1; the median was 10.0 to 1. For Second Hundred firms, average was 9.6 to 1; the median was 9.5 to 1.
Last year, for Am Law 100 firms, the average spread was 10.5 and the median spread was 9.3, and for Am Law 200 firms (i.e., Second Hundred firms), the average spread was 10.5 and the median spread was 9.6. So it looks like pay disparities grew among Am Law 100 firms and declined slightly or stayed roughly the same among Am Law 200 firms.
Note the tentativeness of our language, in terms of what the compensation landscape “looks like.” The tone is intentional, because not all firms responded to the survey, and fewer firms responded this year compared to last year (107 firms this year, compared to 111 firms last year). So we can’t be certain about the true picture of partner pay.
Here are the ten firms with the highest reported spreads in this year’s analysis:
1. Perkins Coie – 23.0
2. Fish & Richardson – 20.2
3. Moore & Van Allen – 20.0
4. (tie) Barnes & Thornburg – 18.0
4. (tie) Sedgwick – 18.0
6. Goodwin Procter – 17.0
7. Bradley Arant – 16.9
8. GrayRobinson – 16.4
9. Seyfarth – 16.0
10. Locke Lord – 15.9
Some of these firms appeared on last year’s top ten, including Fish (#2, with a spread of 23.79); Perkins Coie (#3, with a spread of 23); and Barnes & Thornburg (#9, with a spread of 18).
Last year’s #1 firms, Lowenstein Sandler and Vedder Price, didn’t make this year’s top ten. Lowenstein managed to take its spread all the way down from 24 last year to 13.3 this year. It’s not clear how they achieved such a feat (without a mass revolt of the highest-paid partners); if I were Am Law, I’d want to know more about that. As for Vedder Price, it looks like they opted out of the survey this time around.
Here are the firms with the ten lowest reported spreads:
1. Fitzpatrick Cella – 3.3
2. Dykema – 4.0
3. Kenyon & Kenyon – 4.5
4. Phelps Dunbar – 4.6
5. Sutherland – 4.7
6. (tie) Kelley Drye – 5.0
6. (tie) Goulston – 5.0
6. (tie) Arent Fox – 5.0
9. Kutak Rock – 5.6
10. Thompson Coburn – 5.8
A number of these firms appeared on the lowest-spread list last year, including Fitzpatrick Cella (#1, with a spread of 3.2); Kenyon & Kenyon (#4, with a spread of 4.2); and Phelps Dunbar (#5, with a spread of 4.7).
Remember, of course, that many firms did not participate in the survey — and some of these firms have very low spreads. They include Cravath, reported to have a spread around 3, and Cleary Gottlieb, said to be in that same rough range. These elite lockstep firms pay partners based solely on seniority and don’t have great pay differentials between the lowest- and highest-paid partners.
For firms that don’t have a lockstep model, deciding how much to pay partners is an important and delicate task. Here is how managing partner turned law firm consultant Edwin Reeser puts it, in his commentary on the latest Am Law spread numbers:
[There’s a] collision between actual financial performance and the level of distributions desired by partners. These must be balanced, but when the finite nature of performance is placed next to the never ending appetite for ‘more’ distributions, there must be discipline and strength to prevent disaster.
The demise of most law firms is to be found in ‘over-distribution’ relative to performance. How that over-distribution comes about in a law firm can be quite varied, and thus make distinctions between firms that fail and firms that survive easy to make. That type of distinction avoids the lessons that should be learned by concluding that ‘they are different than us’…. without appreciating that it doesn’t matter how they are different. If both firms are ‘over-distributing’, each in their own distinct and different way, it doesn’t matter: they will both ultimately fail.
Reeser is, by the way, a critic of super-wide partner compensation spreads. He believes that huge spreads can destabilize firms — and boy Dewey know of some examples. The dearly departed Dewey & LeBoeuf had a spread estimated at somewhere between 20 and 25 — numbers sufficient to put it at the top of Am Law’s list, if only Dewey weren’t at the bottom of the Biglaw ocean.
Partner Pay Spreads, Firm By Firm [American Lawyer]
Sliced Too Thin – The Danger of Wide Partner Compensation Spreads [JDSupra]