I suppose that when it’s in The Wall Street Journal, it’s true. Well, it’s certainly true that attention must be paid.
Which brings us to “Pay Gap Widens at Big Law Firms as Partners Chase Star Attorneys,” from the front page of yesterday’s paper. I won’t rehearse the article in its entirety since I assume most of you will have read it by now, but here are a few highlights:
Now some top rainmaker partners at firms in New York, Los Angeles, Washington and Chicago earn $10 million or more a year, compared with $640,000 for the average partner at a U.S. firm […]
Traditional notions of pay equity are falling by the wayside at firms eager to hire and retain proven business generators, whatever their cost, particularly at a time when many companies are reducing spending on outside lawyers. Faced with declining revenues, firms want big-name lawyers who perform mission-critical work and whose billing rates are more resistant to economic downturns. […]
Star partners are routinely earning eight to 10 times the amount given to other partners–roughly double the usual compensation spread of a decade ago. Even at firms with wide pay spreads, the majority of partners typically are paid within relatively narrow compensation bands.
In general, of course, the trend has been for top to bottom pay ratios to increase, from somewhere in the neighborhood of 3:1 across a broad spectrum of firms a decade and more ago to 8:1 or 12:1 or so today. I’ve written about this recently: See 2:1? 15:1? This much we all know.
The much more interesting question is why: What, in other words, is going on here?
Various tentative theories are broached in the WSJ piece, such as (my comments interleaved):
Warren Gorrell, co-CEO of Hogan Lovells, said the firm’s “broad pay spread” and “flexible compensation system” make it easier for the firm to attract and retain top lawyers. (A flat-out recognition of marketplace reality couched as being flexible.)
[That] firms are finding they must widen their range of compensation, [is] “a reflection of market forces,” said Peter Martyr, chief executive of Norton Rose Group, which is based in London and has more than 1,800 attorneys world-wide. “Top lawyers are much more marketable today than in the past.” (Same as above.)
Pay spreads widen as firms become more geographically diverse, operating in cities with varying costs of living, said Peter Kalis, chairman of K&L Gates. The firm’s pay spread rose from about 5-to-1 to as much as 9-to-1 in the past decade as it expanded. “Houses cost less in Pittsburgh than they do in London,” Mr. Kalis said. (Disclosure: I consider Kalis a friend. That said, what Pete is saying here reflects more than cost of living, and houses, per se; it also reflects billing rates and differing markets’ sensitivities to the cost of legal services.)
I’d like to suggest an entirely different explanation, one not mentioned in the article: BigLaw has now joined the rest of the economy in the “winner take all” syndrome. (For an economic primer on the dynamics of winner take all, see this book published 15 years ago, by Robert Frank and Philip Cook.)
What’s the “winner take all” syndrome exactly?
It’s the phenomenon of the most talented, skilled, or merely notorious, stars gaining outsized rewards at the expense of the rank and file of the superstar’s line of work.
This is most familiar to us in the worlds of sports, entertainment celebrities, and best-sellerdom.
Whenever someone-Tom Cruise, Tom Brady, Lady Gaga-achieves escape velocity in their line of endeavor, the returns to them become enormous, while the journeymen/women in their industry increasingly enjoy plain old market-mean compensation.
Why does this happen and how does it apply to BigLaw?
Taking the second question first, yes, it does apply to us. If you’d prefer it didn’t, all I can say is: “Get over it.” Or, more diplomatically, you can be on the wrong side of history or not.
The more interesting question is where does this syndrome come from? And, if it’s always been a latent characteristic of markets, why is it stronger now than in the past?
Technology.
Technology distributes information faster and more efficiently than imaginable even ten years ago. Consider:
- The New York Times used to publish a once-a-week bestseller list, in print, consisting of ten fiction and ten nonfiction books
- Today Amazon updates its sales ranks almost by the minute.
- Billboard magazine would publish lists of best-selling CDs (remember CDs?) on a similar weekly basis
- Today iTunes updates its favorite downloads dynamically, all but in real time
- The “Long Tail” of available talent has multiplied exponentially, to be sure:
- Amazon’s inventory is virtually infinite
- Cable channels number in the hundreds if not thousands, for the average subscriber
- Google “discount blue jeans” and you will get more sites offering them than you could explore in a week
- But/and:
- That makes winners all the more valuable
- Sunday’s Super Bowl audience was the most highly-viewed TV show in history-surpassing only last year’s Super Bowl
- J.K. Rowling, famously the author of the Harry Potter series, has become the first author in history to earn one billion dollars
There are many explanations for all of this, but our limited attention span coupled with the self-reinforcing process of success begetting success has never been more powerful.
Now, back to BigLaw and partner compensation.
Ten or certainly twenty years ago, the CEO of even a Fortune 500 based in, say, Omaha, probably didn’t know the name of a single M&A lawyer at Wachtell, or a private equity lawyer at Latham, or a bankruptcy lawyer at Kirkland. Today that same CEO probably knows the names of the practice group heads at those firms and many more. And don’t get me wrong: This is not an elitist phenomenon, limited to the top dozen or so firms.
It suffuses the ecosystem.
If you want the best representation from a non-Magic Circle firm (say) in the UK, the information available to help you determine the pecking order among Ashurst, Eversheds, Norton Rose, Camerons, Simmons & Simmons, BLP (and on and on-these are random names) is almost overwhelming. It won’t take you too long to figure out who the middle-heavyweight and welterweight champions are.
The result?
2:1 or 4:1 goes to 8:1 or 12:1.
What does this bode for the professionalism of the profession?
The line for entrance to that debate forms to the left. The auditorium will be opened as soon as those debating its impact on popular music, literature, law school professorships, and newspapers, have adjourned.
