By Andrew Maloney | September 06, 2024 at 05:00 AM
A lot of firms are now offering make-whole or even "make-better" agreements to get laterals right away, illustrating top firms' buying power and desire to keep growing as demand and billing rates accelerate.
What You Need to Know
'Make-whole' agreements are an essential part of partner recruiting, particularly as the year winds down.
Some firms are also offering 'make-better' agreements, paying for compensation a lateral might be leaving on the table, and then some.
Money isn't the only motivator for partners, and partners may still leave comp on the table if they feel their practice is better off at another firm.
The appetite for lateral partners in Big Law has remained strong in the second half of 2024, even if it means firms have to cough up extra compensation so lawyers aren't leaving money on the table when they change firms.
There's still plenty of activity on the lateral front even as the third quarter progresses, recruiters and analysts say. Much of the lateral interest will manifest in moves at the start of 2025, in part because partners want to collect all of what they're owed for the year before moving on.
But a lot of firms are now offering make-whole or even "make-better" agreements to get laterals right away, those same industry observers say, illustrating top firms' buying power and desire to keep growing as demand and billing rates accelerate.
"If they're looking at a partner they really want, they're not going to lose that partner because they have to make some back-pay," said Michelle Fivel, a legal recruiter and co-founder of Hatch Henderson Fivel.
For partners who may lose out on an end-of-year bonus for leaving, compensating for that is an "essential" part of any lateral negotiation, added Dan Binstock, a legal recruiter at Garrison Sisson.
"Unless there's some unique variable in the equation, they're either made-whole or made-better," he said in an interview. "And in this market, it's oftentimes made better."
'New Frontier' in Recruiting
At a time when large firms are "on fire" across practice demand, they've also never been more keenly interested in growth, and have doubled down on getting difference-makers with big books of business.
It's a new era and a "new frontier" in recruiting, Fivel said, one in which even the highest-paid partners are potentially on the market. And with all of those variables in play, the top Big Law firms are more concerned with continuing to add talent than they are with having to pay a little bit of a premium for it.
"Obviously, they're looking at all the things the partner brings to the platform, and making them whole on their compensation is usually a small, one-time cost they're willing to pay in order to bring the talent over," she said.
The volume of partner lateral moves right now may be evidence of that. The pace across top markets and elite firms increased by 9% through the first half of the year, according to the legal recruiting firm Macrae. But the day after Labor Day also saw a Big Law lateral bonanza in New York.
Recruiters and partners alike expect more still as the year winds down, especially as demand continues to accelerate and market optimism builds over expected interest rate cuts from the U.S. Federal Reserve. Even the upcoming presidential election, though a source of uncertainty, could catalyze more partner movement.
"We have an election right around the corner, and that is often an exciting time. And you'll see a lot of movement—probably have seen a lot of movement—in the last month or two, and I think you'll continue to see that going into the fourth quarter, both in private practice and folks in government looking to leave," said Andrew Boutros, co-chair of government investigations and white collar at Shook, Hardy & Bacon in an interview about his own move from Dechert this week.
Binstock, the Garrison recruiter, also said he believes "we're going to see one of the busiest fourth quarters that we've seen in a long time." He said some firms having hiring conversations right now are waiting to pull the trigger on moves until the start of 2025 because they want to preserve as much cash as possible for the rest of this year.
Firms also know it takes at least a few months, or longer, for a lateral partner to get up to speed at a new firm and for their investment in a lateral to really start paying dividends. Other firms, meanwhile, are continuing to hire partners aggressively, knowing they have an opportunity and the resources to make them whole.
"For the firms bringing on Q4 hires, it can be a sign they're getting access to uniquely good candidates and/or the firm is doing well financially this year and has extra funds to spend on recruiting and the ramp-up period," Binstock said.
Binstock pointed to the rise in firms using two-tiered partnerships, as well as the rise in the number of nonequity partners around Big Law, as factors behind the lateral activity. He said more firms are able to pay these premiums in recruiting equity partners in part because they're being supported by the nonequity tier.
That's one element of the increasing tension in Big Law partnerships, with firms more fixated on their bottom lines.
"That should be considered: how much the nonequity partners are underwriting the increase in compensation to lateral partners," Binstock said. "It's a gripe we sometimes hear from certain non-equity partners."
Other Move Factors
Of course, not all compensation systems use the same calendar. Some firms time distributions and bonuses differently, and some partners are willing to walk away from compensation if they think they'll be in a better position at another firm for the long term.
Fivel, of Hatch Henderson Fivel, said partners in that position believe they'll make up for any lost compensation in short order because their practice will be better supported at another platform.
Money may not even really be the main motivator. As Laurie Caplane, a senior consultant at LawVision, pointed out in a post this week, money might be far down on the list of reasons for a partner leaving—a list that often includes a lack of connection to leaders or conflicts in their practice, for instance.
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