Big Law Risks Sharp Elbows as Firms Heap Massive Pay on Stars

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at the bad behavior surging compensation packages might produce. Sign up to receive this column in your Inbox on Thursday mornings. Programming Note: Big Law Business is off next week.

Big Law sees its move to supercharge pay for the highest-performing partners as necessary to retain important lawyers.

But as the largest benefits are bestowed upon a precious few, firms should consider the incentives they are creating for partners to seek top pay. It’s only natural that plenty of partners will do all they can to be seen as a “star” or to retain their place at the top.

So, firms should be on the lookout for bad behavior that they have long loathed: Client hoarding, seeking credit for work, and other acts driven by simple jealousy.

“We get told by every law firm we speak to that their comp system is a 360-degree look and it rewards good behaviors,” said Scott Gibson, a director at UK-based legal recruiter Edwards Gibson. “This surge in pay is just completely the opposite. It’s creating star culture. To be paid $20 million, you have to be a star.”

Big Law partners see the rules of the game have shifted, and they’ll do what it takes to win. The most obvious way to win is to bring in the most revenue. In firm lingo, partners want to generate the most “origination credits.”

Those are the biggest single determiner of how much a law firm partner gets paid. It accounts for 64% of compensation variation among partners, according to a survey by recruiting firm Major, Lindsey & Africa.

Hoarding Credit

To be clear, there’s nothing wrong with winning work. But there’s a term for when partners look to hoard credit for work and keep others at bay. It’s called “sharp elbows.” Almost every managing partner I’ve spoken with insists their firm has done all it can to soften those elbows over the years.

They have developed compensation systems that factor in more than just how much revenue a partner is responsible for generating. They also try to ensure that more than one partner, or a small handful of them, manage important relationships with clients. The goal is “institutionalized” clients.

The reason for all this is to prevent “concentration risks,” said Kent Zimmermann, a principal at law firm consultancy Zeughauser Group. He’s advised several firms on strategic plans that aim to have net income attributable to many partners and clients.

Despite those efforts, the Major, Lindsey & Africa survey suggests concentration is growing at law firms when it comes to origination credits.

Equity partners reported client origination credits surged to nearly $5 million on average, according to the survey. That was up by a third from just two years ago.

The most senior partners reported the most growth. Lawyers who’d been partners for more than 20 years reported nearly $5.8 million in average origination credits, a 71% increase from two years ago.

Meanwhile, the median client originations remained unchanged from two years ago, leading the survey’s authors to conclude “there are significant outliers at the high end of reported originations.”

Part of the surge in elderly originations could be explained by an explosion in billing rates over the past two years. The longest-tenured partners often have the highest rates, and they could see an outsize benefit from historically high rate increases across the industry.

On the one hand, a surge in originations could be part of an argument that the highest-performing partners indeed deserve a larger share of the rewards.

But the surge could also be indicative of a culture shift that’s already occurred in law firms. Partners could be seeking to claim bigger origination credits, responding to the perceived benefit of higher pay.

Firm Interest

As partners age, it is in a firm’s best interest to transition work toward a younger, broader cohort of partners. Many law firms are focused on developing strategies to do this, said Lisa Smith, a principal at law firm consultancy Fairfax Associates.

But in the free-agent era, it pays for individuals to pad their stats.

“Sharp elbows exist, I don’t think that has changed,” Smith said. “But the question really is, how does the compensation committee treat that? They will view their job as getting behind the numbers and rewarding the people who are really contributing.”

That’s a delicate task. Firms are likely to find that paying stars while promoting a team atmosphere can be a tricky balancing act.

Worth Your Time

On Diversity: The American Bar Association is tinkering with more changes to diversity, equity and inclusion-specific language standards for law schools, Tatyana Monnay reports. The group highlighted it is not “abandoning the value of diversity and inclusion.”

On Partner Taxes: Getting promoted to a nonequity partner position isn’t as simple as it sounds—at least from a tax perspective. Justin Henry reports on the tax costs sometimes associated with the promotion.

On Partner Taxes II: Kim Dixon reports on what a Trump presidency will mean for the 2025 tax debate, an issue that will affect most Big Law partners—with or without sharp elbows.

That’s it for this week and next! Thanks for reading and please send me your thoughts, critiques, and tips.