How law firms that are retaining top talent through brutal compensation schemes are alienating the lower order of partners.

Simon Chadwick of Espero Consulting shares his insight into why more partners are leaving large law firms now.

It is true that the latest financial year has seen the highest ever levels of PEP amongst the law firm Global Elite. On the face of it, if personal earnings matter to you, there has never been a greater time to be a BigLaw firm partner.

Scratch below the surface however and you will see that such high profitability is rewarding the highest rainmakers at a level far in excess of their otherwise competent colleagues. This is, in part, a tactic to ensure retention of the highest achievers. It is however an increasingly common compensation trend which has created a far less ‘forgiving’ environment for a rounded, technical lawyer who does not bill at a consistently increasing high level year on year. In short it is piling the pressure on a majority of law firm partners.

Many law firms have scrapped the historic billings assessment, which looked back at billings over a number of years, in favour of decreasing the numbers of years they include in their consideration to determine partner compensation. More and more top law firms will now take most account of the current/most recent year to determine partner compensation. ‘Eat what you kill’ is becoming ‘fresh kills only’.

The recent rise in profits of the top law firms has been accelerated by the few most successful generators of business and whereas in past years the difference in reward they would receive was apparent, it is now stark. It is not hard to see how this trend stretches the partnership bond between the haves and have-nots. It is resulting in a greater mobility of ‘engine-room’ partners from the most aggressive firms who are now moving to those law firms with a less cutthroat environment. These movers are in no way unsuccessful; indeed they represent profitable and rewarding laterals for good quality second tier or boutique law firms – thereby raising the stock of those firms.

The latest PEP figures for the Global Elite show earnings at unprecedented levels among the top US firms. Led by Wachtell, Lipton, Rosen & Katz whose PEP weighed in at an average of $6.6M; in several law firms the highest grossing rainmakers are making considerably more than that.

This compensation trend is by no means confined to the large US firms, with Magic Circle firm Allen & Overy in the news recently as it was seen to flex its lockstep in order to accommodate its new Manhattan based finance team, led by partner Scott Zemser. The trend has created a wide spread of reward across the partnership of many firms which can also be accentuated if a firm operates across several jurisdictions; some of which naturally have a lower cost (and lower reward) base. Right now it is possible to be earning up to 30 times less than a fellow partner in some of the Global Elite law firms.

Perhaps therefore it is unsurprising that 2017 has seen an upsurge in movers – in particular at junior to mid-partner level – among the US and European larger law firms.

For more information on this and our other knowledge sharing articles, please contact Simon Chadwick at simon.chadwick@esperoconsulting.com