07 Dec 2021

Cravath becomes latest Wall Street firm to abandon lockstep pay model  

Elite firm moves to modified lockstep two months after losing corporate partner to UK’s Freshfields in New York

Stuart Monk

Top Wall Street law firm Cravath Swaine & Moore has abandoned its lockstep structure for partner pay, leaving the ever-diminishing group of elite firms that are still wedded to the model.

The news, which was first reported by The Wall Street Journal, comes after Davis Polk made the same call in September last year, and for similar reasons.

“This decision will advance our strategic objectives so that we can continue to thrive in a dynamic marketplace,” said presiding partner Faiza J. Saeed in a statement, “while maintaining the values and culture – including our ethos of shared success – that define our firm."

Saeed told WSJ the firm needed to reward partners making “extraordinary” contributions and that while seniority-based pay bands would still exist, partners making the strongest contributions would receive more money.
 
The move is both defensive – in helping the firm fend off approaches from larger rivals like Kirkland & Ellis – but also potentially offensive: in February it made its first lateral partner hire for many years, hiring banking regulatory lawyer David Portilla from Debevoise & Plimpton, another lockstep firm.

September’s landmark hire by UK Magic Circle law firm Freshfields Bruckhaus Deringer of senior Cravath corporate partner Damien Zoubek on its home turf of New York underlined the firm's vlunerability to raids from less profitable firms prepared to pay big bucks for the best talent.

Freshfields' profit-per-equity-partner of $2.3m is half that of Cravath's $4.6m.

Firms that remain wedded to lockstep pay under which partner pay is based purely on their seniority include Wachtell Lipton Rosen & Katz, Debevoise & Plimpton and Cleary Gottlieb Steen & Hamilton in New York and UK Magic Circle firm Slaughter and May in London.

While few would doubt the potential for lockstep pay to contribute to a cohesive culture, the pressure on law firms to tweak their business models to maintain their competitiveness is only likely to grow.

Last week, Kirkland & Ellis shortened its track to equity partner status by a year in a move that reflects the intense battle by leading firms to retain and reward their best talent in booming deal markets.

Meanwhile, in London, Slaughter and May has modernised its management structure to bring it into line with its main rivals. And while it currently remains wedded to its lockstep pay model, the loss of up-and-coming corporate partner Murray Cox to Weil in London in February underlined the challenges it faces when seeking to maintain its pipeline of talented lawyers. 

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