Cravath Swaine & Moore will end its seniority-based partner compensation approach in favor of a new model that also takes performance into account.
“This decision will advance our strategic objectives,” Cravath presiding partner Faiza Saeed said in a statement emailed to Bloomberg Law.
The new model, called a modified lockstep system, allows firms to compensate partners based on performance, in addition to seniority. The goal is give firms a competitive advantage compared to rivals who compensate strictly based on seniority.
Cravath’s decision aligns it with several other Big Law firms that have switched to modified lockstep compensation structures in recent years as the legal market grows increasingly competitive.
Davis Polk & Wardwell announced it would leave behind its seniority model in September 2020, and firms like Paul Weiss have also adopted a modified lockstep system.
The change “makes sense, given the peer group of Cravath and the very small number of the most elite profitable firms in the world, both for retention and the episodic attraction of lateral partners,” said David Walden, a New York-based recruiter and co-managing partner of E.P. Dine Inc. “It is the way of the world now.”
The move, according to Saeed’s statement, will let Cravath “continue to thrive in a dynamic marketplace while maintaining the values and culture—including our ethos of shared success—that define our firm.”
Cravath has lost a handful of partners to competitors who are willing to pay above the upper bands of lockstep firms. Most recently, Damien Zoubek, a top M&A partner, joined Freshfields Bruckhaus Deringer from Cravath.
Kirkland & Ellis, which is credited with ushering in the threat to lockstep firms by dangling huge compensation packages over the past decade, has hired former Cravath partners including litigator Sandra Goldstein, and M&A partners Eric Schiele, Jonathan Davis and Sarkis Jebejian.
Walden said it will be interesting to see what influence Cravath’s move has on the remaining U.S. pure lockstep firms.
“Any top tier U.S. lockstep firm has been having this ongoing discussion for the past three to five years,” he said. “So this may not influence them, but you never know.”
Debevoise & Plimpton and Wachtell Lipton Rosen & Katz now remain some of the only major firms operating under a strictly-lockstep system.
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Cravath is known as a market leader in compensation. In November, the firm was first to announce a new bonus scale that increased year-end awards to $115,000 for senior associates, up from $100,000 in 2020.
Firms like Boies Schiller Flexner, Cadwalader Wickersham & Taft, Cleary Gottlieb, Hogan Lovells, and Mayer Brown have all matched the new scale, though some have announced performance-based bonuses of up to $150,000 in addition to the base bonus.