Changing Compensation Strategies Put Partners Under Pressure

Nell Gluckman

Law firm partners have never been able to make as much money as they can now. The highest profits per partner on our Am Law 100 rankings in 2015 came in at $6.6 million at Wachtell, Lipton, Rosen & Katz, while the rainmakers and leaders at a select few firms can make at least twice that. But being paid more at the top can mean less for those below, stretching the definition of "partner."

The legal profession has never been more cutthroat. As the race for revenue intensifies, firms are putting more pressure on their partners to perform in a number of criteria. If they don't, it will be reflected in their compensation, title and possibly their place in the firm. For a profession that once provided a secure path to upward mobility, some partners are sliding back down in compensation, to the benefit of those still on the climb.

Law firm leaders say that with each decision they make about compensation, they're sending a signal to the rest of the firm about what is and is not valued. While there are almost as many partner compensation systems as there are law firms, consultants say one thing many firms have in common is that they are growing increasingly scrupulous in how they make decisions about what to pay partners. There are several ways law firms are putting the pressure on partners, from looking only at one year's billings in setting compensation to more easily moving partners up and down the pay scale.

Firms are decreasing the numbers of years they consider in determining compensation, consultants say. Since the recession, firms have become less willing to give a partner leeway for a bad year. They also want to be able to reward a partner who does well to keep them from getting poached by another firm.

Rewarding partners with a bonus, rather than moving partners to a higher tier on the pay scale, is easier for long-term planning purposes, says Jacquelyn Knight, a recruiter at Major, Lindsey & Africa. If the partner is not as productive the following year, it's easier to simply not give them another bonus, than it is to demote them.

"I have seen an increase at many firms in the bonus structure," Knight says.

Read more of this feature at The American Lawyer.

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