Last week Jim Stewart of The New York Times published $11 Million a Year for a Law Partner? Bidding War Grows at Top-Tier Firms which was pegged to the news that Sandra Goldstein had left Cravath for Kirkland, and a reported compensation package of $11-million/year for five years, plus a signing bonus. A few weeks earlier the Financial Times had come out with The dawn of the superstar lawyer, pegged in turn to Scott Barshay’s 2016 move from Cravath to Paul Weiss, which drew a direct causal link to Cravath’s lockstep:
Frustrated with Cravath’s age-old system of paying its partners according to longevity and seniority versus sheer output, Mr. Barshay left the only firm he had ever worked at to move to a New York rival. Paul, Weiss.
Brad Karp, Chairman of Paul Weiss, was quoted in both articles and made congruent remarks. From the FT:
“It’s becoming more and more difficult to retain star talent in a purely lockstep model. You’re seeing sums that rival sports free-agent compensation arrangements being offered to star partners at corporate law firms.”
And from the NYT:
“There has been a gradual but steady erosion of both client and partner loyalty. A generation ago, clients were reflexively loyal to their law firms. The relationship today is more transactional and clients tend to be more loyal to particular partners. This new paradigm creates more opportunity, but also creates more flux.”
Let’s not appear to be picking on Cravath; these stories were, as I noted, journalistic “hooks” for the FT and the NYT but the future of lockstep is not a Cravath issue; it’s an issue for leadership of our industry. Long ago (fifteen years? before that?) it became clear to me, and presumably to other observers and analysts, that the Magic Circle would continue to experience frustration, vast expense, and tears in their efforts to penetrate the New York market if they continued to (by and large) export their lockstep to these shores. Meanwhile, some home-grown New York firms (Cleary, Davis Polk, Debevoise, Simpson Thacher) appear to be managing their partnership ranks rather differently even as they continue to hew to fairly strict lockstep models.
Which brings me to the issue always at the forefront of lawyers’ minds: Definitions. What do I mean by “lockstep” here? We all know what eat-what-you-kill means, or think we do, although EWYK itself comes in rigorous and more flexible permutations.
This is the larger point, isn’t it? I have always conceived of partner compensation models as falling on a spectrum from purist 19th Century lockstep to Ayn Rand-ian EWYK, with a continuum between them, “continuum” in the quasi-mathematical sense meaning any and all values or locations between the extremes are available: There are no discrete stopping points or gaps in what’s theoretically possible.
So for today’s purposes “lockstep” I shall deem to mean the quite strict version of lockstep, meaning seniority-driven partner compensation with little management discretion to vary from the formula’s dictates. “Quite strict” and “little discretion,” you ask? Let’s say something on the order of less than 20—25% away from what the pure formula would prescribe.
Abstracting from our industry’s obsession with partner compensation, this sounds a heck of a lot like our associate compensation plans, doesn’t it? A seniority-driven lockstep with, especially as years accrue, discretion over individual bonuses. If nothing else, this demonstrates we know how to do it when we are so motivated.
The essentially universal prevalence of this associate compensation model invites another observation: It apparently makes some sense. That is to say, both distant and recent history in Law Land support the hypothesis that associates paid under this model feel properly motivated, view their compensation as fundamentally fair, and that there is no genuine or systematic senior/junior resentment or envy.
Permit me to extrapolate from this track record: To a large extent, wouldn’t a similar model work for the great majority of partners? That is to say, fixed annual increases in baseline compensation with management discretion to award year-end bonuses (or to subtract year-end demerits) based on outlier variations in performance. This is sounding a lot like a minorly modified lockstep system.
And, I would argue, the reason it’s proven stable and durable vis-à-vis associates—and in many firms vis-à-vis partners—is simply that it reflects human nature and the normal course of a professional’s career. Seniority isn’t everything, but as Malcolm Gladwell’s famous (perhaps too famous) 10,000-hour rule demonstrates, plain old practice and experience count for a lot. It’s a handy, convenient, “bright line,” and not intrinsically irrational proxy for the development of legal expertise and judgment and by extension value to the firm and to clients.
Besides, most people are within two or three standard deviations of the norm in terms of performance and if not hyper-attuned to each and every individual each and every year, it’s good enough over the long run, and at some point more and more management time devoted to head-of-a-pin adjustments to comp is not worth it.
This leaves us with the high and low ends of the performance curve, where I would advise most of the conversation and analysis ought to focus.