Meghan Tribe, Reporter & Justin Wise, Reporter
Published: Nov. 7, 2023, 10:01 AM PST; Updated: Nov. 7, 2023, 1:02 PM PST
Cravath Swaine & Moore adopted new partner tier amid other changes. News of shift comes as peers consider own compensation moves.
Cravath, Swaine & Moore has quietly created a salaried partner tier, making it the latest in a series of Wall Street law firms to revamp pay schemes in response to new competitive forces.
The firm “recently established the salary partner role,” Faiza Saeed, Cravath’s presiding partner, said Tuesday in an internal memo viewed by Bloomberg Law. “These changes have enabled the Firm to retain and promote extraordinary people at all levels so their experience and expertise can continue to benefit our clients.”
A Cravath representative declined to comment.
Nonequity partner tiers, in which lawyers are paid annual salaries rather than getting a share of profits, were once scarce among Wall Street’s elite firms. The classification is now becoming more common as a tool to help firms retain talent and free up more cash for top partners.
The move “is a recognition that the century-old bimodal career structure of law firms has come to the end of its useful life,” said Bruce MacEwen, a law firm consultant. “The old structure is showing its age.”
Cravath’s change comes as peer Paul, Weiss, Rifkind, Wharton & Garrison reportedly is considering adopting a nonequity partner tier in 2024.
Cravath created the nonequity partner tier in late 2021, according to three sources familiar with the situation who spoke on condition of anonymity. The 204-year-old firm at the same time made another major change, loosening its lockstep pay model in which partners were compensated solely based on seniority.
The firm currently has between five and 10 partners within the salary tier, the sources said.
Kirkland & Ellis, the world’s most profitable firm, has one of the largest nonequity partner tiers. Simpson Thacher & Bartlett introduced a nonequity partner tier in 2019 as did Willkie Farr & Gallagher. Davis Polk & Wardwell; Cleary Gottlieb Steen & Hamilton; Debevoise & Plimpton and Wachtell Lipton Rosen & Katz remain single-tiered partnerships.
Competition in the hiring market is driving the moves away from lockstep compensation and single-tier partnerships, said Michelle Fivel, a partner at legal recruiting firm Hatch Henderson Fivel.
“The tweaks are designed to make it easier to compete for lateral talent, as well as retain superstar performers,” said Fivel. They give firms “flexibility” to pay rainmakers more than others and promote attorneys who are not big business generators.
Cravath over two centuries has built its brand as a top flight deals firm, recently advising the likes of Amazon, Walt Disney Co., and Johnson & Johnson. Paul Cravath, who led the firm in the early 20th century, is credited with creating the business and training model that virtually every “white shoe” law firm emulated.
Cravath’s relatively small partnership—consisting of 97 lawyers—raked in nearly $4.7 million apiece in average profits last year.
The firm, which rarely sees partners decamp for rivals has sustained some notable exits in recent years. Dealmaker Damien Zoubek joined Freshfields Bruckhaus Deringer in 2021 as co-head of its M&A practice, while M&A partner Andrew Elken joined Latham & Watkins earlier this year. Cravath also saw a trio of partners head to Davis Polk & Wardwell, including David Portilla, the head of its bank regulatory practice.
For its part, Cravath opened up an office in Washington earlier this year, hiring notable government officials like former acting attorney general Jeffrey Rosen. It also launched an English law offering in the UK with hires from Shearman & Sterling and Latham & Watkins.
Saeed in her Tuesday memo to the firm noted that lawyers in salary partner and of counsel positions can continue to be considered for equity partnership.
“That fluidity is both more consistent with the current market for legal talent and certainly benefits our people and our clients,” she said.
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