There are many factors to consider when determining partner compensation. One important factor is the amount of business that a partner brings in.
Unlike most professional jobs that pay hourly wages and offer overtime, partners at law firms are usually paid an annual salary. However, the number of hours that a partner bills each week can also be significant.
Larger Firms Pay Bigger
In a recent survey of partner salaries by the legal search firm Major, Lindsey and Africa, partners at the nation’s top firms made $850,000 to $5 million. Unlike associates, however, partners don’t earn hourly pay. Instead they receive salaries based on their performance, including the number of billable hours worked.
The more business a partner brings in and handles, the more money he makes. This is the philosophy behind the so-called eat what you kill compensation model.
Many equity partners, especially at large firms, also have a stake in the business through profit distributions. This enables them to enjoy higher salary levels, but it also means their jobs are more at risk if the firm does poorly. In addition, if they don’t consistently collect enough billable hours, they can be demoted to non-equity status. This may not sound like a big deal, but it often leads to the departure of non-performing partners. It is important for new partners to be extremely proactive in generating business to avoid being laid off.
Biglaw Pays Big
When it comes to paying associates, Biglaw firms don’t mess around. According to a 2023 report by Chambers, the top New York-based firms pay first year associates at least $215,000. Some firms use a “lockstep” bonus system that matches last year’s bonuses, while others follow the famous Cravath Scale and pay associates based on hours billed.
In addition to base salaries, many large firms pay for a variety of work-related expenses. Some firms will cover moving costs and even foot the bill for an associate’s dinner out with a client. Others offer subsidized gym memberships and on-site meals.
Some large law firms also rely on KPIs, which measure performance in areas such as the number of new clients brought on board or revenue generated for the firm. This can incentivize partners to meet these targets and earn larger bonuses. Others follow a more traditional equity partner profit share model in which profits per partner are based on seniority and not performance.
Biglaw Rainmakers Are Breaking $10 Million
Some top Biglaw partners earn more than $10 million a year.
For a partner to reach this level of compensation, he or she must bring in substantial revenue for the firm each year, usually through billed hours and origination credit. A partner who brings in more revenue will receive a higher “draw” or salary distribution than another who does not.
The highest-ranking equity partners are also typically entitled to a share of the firm’s profits, either on an annual basis or on a quarterly basis. This is known as a “profit participation” award and can be very lucrative.
In some cases, the highest-paid equity partners are earning sums that rival sports free-agent compensation arrangements. This is making it harder for firms with a lockstep model to retain star talent. Cravath, Sullivan & Cromwell and other white-shoe institutions have been known to pay eight-figure packages for rainmakers, but these lucrative salaries are luring younger stars away from traditional firms.
Biglaw Firms Pay Big
Many firms pay partners a substantial salary. The amount of their compensation can vary based on the firm’s profits and their performance. They are incentivized to meet KPIs (key performance indicators) that may be tied to the number of new clients they bring in, the amount of revenue they generate or how many hours they bill.
The highest-performing Biglaw partners can earn millions, generating a significant return on their investment. These names can be found in the Profits Per Partner (PPP) figures that are reported in American Lawyer and other publications.
However, it isn’t just the partners with a strong book of business who can make this much money. Even third-year associates in major markets like Houston can be paid New York rates, with firms recognizing that clients are willing to pay top-dollar for their services, especially when they come from a firm in an expensive city. That’s why the lateral market for Biglaw talent is so hot.
