New York law firm Cravath, Swaine & Moore LLP is moving away from its seniority-based compensation system, upending a hallmark of the firm’s culture that has made it a rarity in the cutthroat world of modern-day law firms.
Cravath’s change leaves just one or two large firms with what is known as a pure lockstep compensation model, which rewards partners based on the number of years they have worked, regardless of how much business they bring into the firm.
Lockstep firms have long touted a focus on keeping collegiality and teamwork at the fore. The system has become strained in the past decade, however, as some firms have begun paying $10 million or more to top performers, an amount seniority-based firms typically can’t compete with.
“Having zero flexibility to acknowledge super-performers is doing a firm a disservice over time,” said
a legal recruiter and consultant familiar with Cravath’s plans. “In the hypercompetitive environment for talent, you’re almost making yourself a target” for poaching by other firms.
Indeed, Cravath has lost a few partners over the years to firms willing to pay them more.
Cravath’s presiding partner, said the firm realized it needed a way to reward partners “who contribute at an extraordinary level.” Under the new system, the seniority-based bands will still exist, but more money will be distributed to those making the strongest contributions.
Ms. Saeed said the change came without internal friction among Cravath’s 96 partners, and may have been more well accepted now in a pandemic era in which upending norms has become standard.
Founded more than 200 years ago, Cravath has long been known as having a distinct culture from other large law firms, and says it isn’t a place for big egos. The “Cravath system,” developed in the 20th century, stresses constantly rotating young lawyers through practice areas to give them broad training, promoting from within and rewarding teamwork.
The lockstep pay became part of the Cravath way in the 1970s, Ms. Saeed said, when the firm’s partnership was one-third the size it is now. After almost 50 years, the partners decided it was time to move on.
“The velocity of change has just accelerated,” Ms. Saeed, who has managed the firm since 2016, said.
Landing a job at Cravath out of law school has long been considered an elite steppingstone to jobs in finance, business and other areas of law. Few who arrive actually become a partner; around 100 are recruited to join each year as junior lawyers, while just a handful are typically promoted to partner annually.
Law firms have fared spectacularly well in recent years, riding a wave of transactional and public-offerings work not slowed by the pandemic.
Cravath recorded $824.3 million in revenue in 2020, according to the American Lawyer magazine, with its partners making an average of $4.6 million. Seven firms surpassed that salary figure, with average partner profits topping out at $7.5 million at deal firm Wachtell, Lipton, Rosen & Katz LLP, according to American Lawyer data.
Ms. Saeed said the firm’s revenue has climbed to around $1 billion this year.
Wachtell, along with New York-based Debevoise & Plimpton LLP, are the two remaining major firms often associated with the lockstep model.
Debevoise’s website boasts that the system creates a “culture of collaboration among all lawyers” and ensures matters are led by those most suited to handle them.
At firms with what is known as an eat-what-you-kill system, partners often have little incentive to pass on assignments to others for risk of losing credit. Most law firms fall somewhere in between the two extremes, paying partners based on a mix of merit and seniority.
Write to Sara Randazzo at [email protected]
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