By Aebra Coe, Law360 | June 4, 2024, 4:31 PM EDT
Word of the occasional $20million lateral partner move has made its way into the legal press as a talent war between the richest of the rich law firms heats up. But how common is it, and which law firms are offering up top-of-market partner pay?
High-end legal recruiters shared their thoughts with me on who's getting paid $20 million — or more — and which firms are willing to pay it.
The context for these behemoth compensation guarantees starts with a struggle that's emerged for top partners who control massive books of business as the highly profitable — and traditionally less laterally-inclined — white shoe law firms like Paul Weiss Rifkind Wharton &Garrison LLP and Davis Polk & Wardwell LLP have entered the lateral scene en force prompted by firms like Kirkland & Ellis LLP luring away top partners with large compensation packages.
The traditional New York firms have fought back by altering their compensation structures to pay more at the top end and hire lawyers away from Kirkland and other peers. Ultimately, the firms are competing for business and clients that are increasingly attached to high-profile partners as opposed to remaining with a single law firm for generations.
The back-and-forth heated up late last year, after Paul Weiss brought on a
group of 13 partners from Kirkland and Linklaters LLP that included multiple heavy hitters, two of whom are reportedly earning compensation at the top of the industry.
The group was led by Kirkland partners Neel Sachdev and Roger Johnson, who joined Paul Weiss as co-leaders of the firm's London office, and Eric Wedel, who led the opening of its Los Angeles office.
Since then, the war has waged on. And recruiters say $20 million is becoming more common —within a tiny sliver of the industry — as that new ceiling sinks in and as the most profitable firms fight for lawyers that control books of business that sources tell me can reach as high as $100million.
OK, getting to the point, how common is it?
"You're looking at your Ryan Goslings and Scarlett Johanssons that are earning these numbers,"said Karen Andersen, a recruiter at Major Lindsey & Africa, comparing those earning $20 million to A-list movie stars.
Shifting her analogy to sports, Andersen said, "It's a very small segment of the market. It's a funneling, much like going from high school basketball to college to the NBA. Very few players will make it there, and once you do, there are very few LeBrons out there."
Those earning $20 million are the legal world's LeBron Jameses: only working for the highest-paying clients and controlling books of business with revenues that would nearly land them on the Am Law 200.
According to Sabina Lippman, of recruiting firm Lippman Jungers/Johnson Downie, which works with multiple New York firms, "A substantial number of firms who couldn't previously [offer $20million] are able to now. Some Wall Street firms' top compensation is not yet at this level."
A few scrappy firms looking to raise their profile have offered $20 million or more to laterals, even though they're not among the top 20 most profitable firms, Lippman told me. And on the other side, at least one of the firms in the top 20 wasn't able to compete for a near top-of-the-market candidate on pay and pension, she said.
Michelle Fivel of Hatch Henderson Fivel says she would be surprised if there are five people total in Los Angeles earning $20 million, with more than that in New York, and a "small handful" in Northern California.
Hatch Henderson Fivel has worked to place partners at white shoe and other top firms, and has placed partners at or near the top of the market for compensation.
She says that when partners demand those compensation guarantees, they more than make up for it with the business they bring to their new firms, pointing to two examples where the partners' books of business were five times their compensation packages.
"It's all about the business they're bringing in and bringing with them," she said. "And then the name they have in their practice area that allows them to attract business."
That's one thing about a compensation guarantee for a lateral: with a tiny number of exceptions, it only lasts a year or two and then the partner enters the firm's compensation system where their pay is calculated based on a number of factors, primarily origination.
That means $20 million could become $30 million in five years if the partner's practice takes off at the new firm, and that's often the goal, according to Andersen.
"What is it about the firm I'm going to that my former firm didn't have that will allow me to go from $20 million to $30 million in compensation, whether it's expanding internationally, broadening my practice or something else? These partners are often looking ahead," she said.
Additionally, compensation alone is not enough to lure the top candidates, Lippman said.
"A lot of firms think that if they realign their compensation system to be able to pay top-of-market, they will suddenly see top recruits," Lippman said. "That's way overstated. What the most strategic and thoughtful top firms are doing is taking a multipronged strategy."
That means there's a strategy around how to approach the market, defining the value proposition that will distinguish the firm from competitors in its cohort, identifying the best internal messengers for different recruits and practices, sharing which aspects of the platform can benefit a lateral's practices, and having a platform that substantiates all of this, Lippman said.
"Compensation may help to attract top candidates, but if you don't have the other prongs, it's still not going to differentiate you from the pack," she said.
I asked the recruiters I spoke to if any of the firms they know of had regretted a decision to offer market-topping compensation to a candidate.
"The only regrets I hear about are the firms that didn't get those people," Fivel said. "Sometimes we get phone calls from firms that see a huge move and wonder, 'Why didn't we get a bite at the apple?'"
Lippman said that at the eight-figure level, firms typically have extensively vetted candidates, and their practice usually "clearly justifies that level" of compensation, although there are some notable exceptions. Additionally, other firms are often vying for those candidates at the same time, necessitating a strong offer, she said.
"Candidates generally want to be paid fairly within an Overton window of compensation that is comfortable for the firm and doesn't put a target on them," she said, referencing a political concept defining the range of policies that are acceptable to the mainstream population at a given time. "They want to be on the upper end of that window, so it's comfortable for the firm but a competitive level of comfortable."
--Editing by Nicole Bleier.
The Bottom Line is a column by Aebra Coe. The opinions expressed are those of the author and do not necessarily reflect the views of Portfolio Media Inc. or any of its respective affiliates.
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