A Successful Am Law 100 Compensation Model Means 'More Flexibility and Less Lockstep'

Big Law firms have stepped into a whole different world of partner compensation in the last year, by stretching their spreads, increasing bonus pools, moving to “black box” systems, adding nonequity tiers, and implementing “super” points, among other changes.

The changes have allowed firms to stretch out their partner pay ratios and increase the top rung of the compensation ladder. At some firms, it can now reach $30 million to $40 million.

So how did the compensation changes affect their overall performance? When you drill down to it, the name of the game is flexibility, industry analysts and firm leaders say. The firms that increased their flexibility in compensation systems recruited and retained the talent that continued to turn in the strongest performances.

Overall, the Am Law 100 firms increased revenue by about 13.3%, and profits per partner by 6.9%, to an average of about $2.995 million, between 2023 and 2024.

It’s hard to untangle causation, but some of the firms that have adjusted their pay systems in the last two years had better-than-average profit growth.

To be sure, many of the firms adjusting partner comp are New York firms that traditionally have relatively higher profit rungs and are increasingly seeking flexibility in partner pay as the talent battle escalates among elite firms.

Cravath Swaine & Moore, which created a nonequity tier after breaking its lockstep partner pay model, increased revenue by about 9% to about $1.2 billion in 2024 and profits per partner by more than 13%, to $6.85 million.

Davis Polk & Wardwell, which consulted with partners about how to restructure its pay system, grew revenue by more than 25% and average profits per partner by about 26%, to $7.8 million.

Paul Weiss, which moved to a black box compensation model and started a nonequity tier, grew revenue and PEP by about 32% and 14.7%, respectively.

For its part, Simpson Thacher & Bartlett confirmed that it stretched its spread last year, with its highest-paid partners breaching the $20 million mark. The firm grew revenue by 24% and PEP by 19%.

Weil Gotshal & Manges grew revenue roughly 11% and profits per partner 15.6% in a year when the firm updated its pay system to emphasize client relationship expansion.

Latham & Watkins grew revenue 23% to $7 billion, and profits per partner a whopping 29.4%. The firm in 2024 added two new tiers of points at the top of the scale, allowing the highest-performing partners to jump to 1,300 or 1,700 points.

In general, “the firms that have the flexibility to set the market on compensation often have first choice on talent in the pool that they and others are hiring from,” noted Kent Zimmermann, a law firm consultant for Zeughuaser Group. It’s not a hard-and-fast rule, he added, but it does seem to be an increasingly good rule-of-thumb.

And it leads to something of a pattern: the bigger, more profitable firms have the ability to increase compensation, or at least provide partners more opportunities to increase their take-home pay. Partners within the firm and on the market are attracted to that, and incentivized to work for the reward. “As a result, firms that are pulling away from their competitors on profit and/or size are increasingly advantaged on partner compensation and flexibility on partner compensation.”

'Competitive in the Market'

Mayer Brown’s profits per partner shot up 14.3% last year to about $2.8 million while the firm put itself on a clear path to cross the $2 billion mark by increasing revenue 4%. At the same time, average compensation for all partners increased 11% in 2024, to about $1.48 million.

The firm recently adjusted its compensation to be more competitive, firm chair Jon Van Gorp said in an interview.

“Compensation is a part of recruiting and retaining talent, for sure. And we did a review of our compensation system, and the compensation for equity partners was expanded with more room at the top to pay our top performers. That was implemented this year,” he said in an interview. “Like many firms, we’ve expanded the range of our equity compensation bands in order to be able to be competitive in the market for talent and talent retention.”

Bonus pools helped law firms become more flexible in partner pay, often lengthening the spread between the highest paid and lowest paid partners.

The number of firms using bonus pools, and the size of those pools, grew in 2024. A report from Fairfax Associates noted that pools historically averaged about 5 to 8% of net income, but “they are now being stretched to 10-12% or more,” with some as large as 25%.

Bill Stoeri, chair of Dorsey & Whitney, said his firm’s pool is about 9% of gross revenue (the firm in 2024 eclipsed the $500 million mark, increasing revenue about 10% to about $513 million). Stoeri said the idea is to make sure the people who were particularly helpful in driving that performance are “properly rewarded.”

The firm also increased its spread from highest- to lowest-paid equity partners, from 6.6:1 in 2023 to 8.5:1 in 2024, which Stoeri said was “a good thing in terms of strategy” in a competitive market. “Lawyers are more mobile. They need more flexibility and less lockstep. That’s all true.” Profits per partner at the firm also rose about 16%.

Jon Lindsey, New York founding partner at recruiting firm Major, Lindsey & Africa, said when the industry has a year like it did in 2024, it’s like increasing the salary cap in a professional sport, like basketball or football.

Law firms, he said, “invested dramatically in the people they brought into the firm, and those investments paid off. I think it then makes it easier to say in the current year, ‘We want to invest in these other laterals,’ and ‘Look how much we’re making with these other guys.’ There’s less resistance within the firm because they see the results of making smart investments,” he said.

“Having that flexibility in compensation makes it possible to reward the people who should be rewarded and attract the people who are going to make you stronger.”

Flexibility From Top to Bottom

Whether the market is up or down, firms may continue to make tweaks to equity partner compensation.

More than one-third of firms surveyed for the 2025 Citi Hildebrandt Client Advisory stated that they expect to make changes to their partner pay models over the next two years, either by stretching the spread or reviewing the criteria used to assess comp levels.

Flexibility in compensation models will help law firms through a volatile and unpredictable economy, including in 2025. Bonus pools are often used to reward short-term performance, letting firms expand or contract some partner pay from one year to the next.

Several consultants agreed that one of the biggest trends in compensation right now is not only the additional flexibility to increase partner pay, but to drop it as well.

“Lots of people in lots of firms have, say, $5 million in originations, and 1,700 hours in productivity. And they’re the same in 2024 as they were in 2014. But they’re making much more, sometimes by a factor of many, simply because they’re riding the increase in point value or the equivalent in point value as the firm gets more profitable overall,” said Zimmermann, the Zeughauser consultant. “Behind closed doors at many firms, the discussion has turned to, should that be the case? Or are some of the people, the people who rode the increase in the point value, really artificially inflating the compensation? And is it necessary to take those people down?”

He added: "It’s easier to take people up, and harder to take them down. Therefore, there hasn’t been enough attention to that overall. And I think that will happen more in firms, perhaps starting this year."

Reprinted with permission from the April 15th edition of The American Lawyer © 2025 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.