Big Law Equity Ranks Shrink to Make Room for $40 Million Pay

The biggest law firms are admitting a smaller share of partners into ownership ranks, a tactic used to reserve profit distributions for lawyers who bring in the most business.

The number of equity shareholders stayed roughly flat last year at firms surveyed by Bloomberg Law while the tally of non-equity partners grew 5%. The declining ratio of equity partners reflects a longer and more narrow road to become a shareholder in Big Law where practice profitability reigns supreme.

“If you restrict more of those service partners to an income partner role where there are structural limits for how much they can earn, that frees up money for the folks generating work,” said law firm adviser Blane Prescott, managing shareholder at MesaFive LLC.

He’s helped set partner compensation this year at more than $40 million—at the “extreme” end of Big Law pay, he said. Prescott declined to say which firm pays partners more than $40 million.

Prestigious firms have long prided themselves on a collaborative culture that came from a seniority-based approach to compensation. The idea was that everybody was pointed in the direction of firmwide success instead of fighting for origination credit.

Read more: See which firms came out on top overall in Bloomberg Law’s Leading Law Firms.

But outsized enticements needed to lure rainmakers have led leaders to conclude that equity distributions have overpaid some partners relative to their economic contributions.

Restricting the tier of equity partners allows firms to reward promising senior associates and counsel the title of partner without diluting the value of equity for their shareholding colleagues, said Lisa Smith, a law firm consultant at Fairfax Associates.

“The last decade has been so strong in terms of firm performance that the rising tide was lifting all boats, and some of those boats were rising too much,” Smith said. Having a portion of compensation fixed “helps to push more money at the top to the people who are really driving the success of the firm.”

Several prestigious law firms in the last five years have adopted the pay flexibility that comes with a multi-tiered partnership—Skadden, Freshfields, Debevoise, Cravath, and Paul Weiss among them.

Impact on Culture

Becoming a partner used to be viewed as the pinnacle of a lawyer’s career—both in terms of compensation and social status.

After years of toiling in the trenches as an associate, joining a firm’s partnership came with shares of equity that accrued in value. Partners, as firm co-owners, also had a say in the destiny of the enterprise.

Many partners today have little more to show for their status than the title and elevated salary. That’s because the equity that used to accompany the title has taken on another role: advertising earning potential to prospective lateral partners.

“It’s a currency, and that currency is being used to bring in more talent,” said David Perl, managing director at headhunting agency Mark Bruce International. “If you can cut everyone a bigger piece of the pie, you could boost your profits per partner.”

As the profitability of a law firm partnership grows, so too does the requirement for a new entrant’s book of business. This dynamic was accentuated in the period following Covid-19, when a boom in SPAC, capital markets, private equity, and M&A grew those practices’ contribution to their firms’ bottom lines.

“Among middle market firms, it’s not unusual to hear firms say if you have under a million in business, that’s not enough to become an equity partner,” Prescott said.

The increasing emphasis on business performance metrics means Big Law lawyers brokering large-cap transactions have better chances of becoming an equity partner. Those in niche and specialty practices such as tax, antitrust, and executive compensation are increasingly finding themselves deemed “service partners” in the income partner tier, recruiters say.

“It’s not to say there are no tax, executive comp and benefits equity partners,” said Danielle Thompson, a legal recruiter with Damato Search Group. “It’s just that there are fewer.”

All Stick, No Carrot

Senior associates, already fighting for business origination credit, face a heightened challenge when firms let lateral partners in the non-equity door.

“A lot of senior associates and counsel thought the equity tier felt out of reach,” Thompson said. “Now there’s this non-equity tier where not only they are fighting for the title, but there’s this capacity for laterals to take up that space.”

Partners at wealthy law firms have no incentive to go back to the de-leveraged partnership model of a previous era. However, Thompson said, millennial and Gen Z lawyers she talks to are more willing than older generations to consider moving in-house or to a boutique firm where they perceive the career pressures to be lessened.

An ecosystem of law firms has formed to cater to lawyers seeking an alternative to the Big Law grind. Distributed law firms such as Mavacy, Rimon, and Pierson Ferdinand pitch themselves as the inverse to nearly every facet of Big Law—a flexible work schedule and pay plan based on a cut of collections rather than ascending partner tiers.

Mavacy founder Michael Melfi said his firm may not compete for the same big-ticket work as larger firms but the work-life balance is worth the trade.

“Big Law lawyers want that profits per partner, and there’s nothing that’s going to stop them wanting to stay on that treadmill,” Melfi said. “But there’s an alternative that allows me to have work-life balance and I can work when I want and where I want.”

The Leading Law Firms score is a weighted combination of four pillar segments, with the Talent pillar accounting for 35% of the overall score.

The data came from a short, yet comprehensive questionnaire by Bloomberg Law allowing law firms to self-report data. Bloomberg Law only accepted data provided by the law firm, and did not source publicly available data to supplement any firm’s submission.

See the main story for more information and full program methodology.