I have long argued that partner remuneration in an elite law firm should really only be a hygiene factor: in order to attract and keep their highest performers, pay needs to fall within a broadly competitive range, but within that range, financial reward is not the principal motivator. The current increase in lateral hires, as well as the scale of recent recruitment packages, is, however, forcing me to question this.
To my mind, success, at both the personal and firm level, has always been about more than money. Within an expected income range, partner motivation is about the why, not the how much – the sense of purpose a lawyer gets beyond the money, and the extent to which they can decide to fulfil that as part of a professional partnership instead of as a sole practitioner.
The price of ambition
My former colleague and veteran law firm consultant Tony Williams recalls putting a straightforward proposition to the partners in one firm. He could help them increase profitability by 50%, but with clear trade-offs: working, say, 30% more, being unavailable to their families one or two evenings a week and unexpectedly losing the occasional weekend to a client matter.
For that particular firm, the answer was no. The personal cost would be too high.
And of course, isn’t that the benefit of legal practice – being financially comfortable, if that is what you want, without making deep sacrifices? Also, deciding your own destiny, provided the partners agree on what they want to achieve and what they are prepared to give up in return.
Hence, the path to greater profitability is typically clear. Tony’s partners did not reject the strategy; they rejected the price of achieving it. Agreeing the right strategy is about much more than money. It starts with what success means to each partner personally, and then asks whether a shared firm aspiration can reconcile those interests, and ideally amplify them.
When a competitor offers double
Tony’s firm was aligned on its shared aspiration. The harder task is leading a firm where some partners want to pursue the additional profit and others do not. When differences in opinion and challenges over profit division arise, partners vote with their feet, and the biggest contributors are often the first to go.
Law firm consultant David Morley anticipated rising prices for top partners and faster lateral movement back in April. Judging by the daily legal headlines, we are now seeing that on steroids.
Firms are pursuing partners previously considered unlikely to move. These are strategic hires: partners whose expertise and trusted client relationships can attract highly profitable work and unlock higher-value opportunities for colleagues. Their strategic value can considerably exceed that of their existing book of business.
Guarantees reaching $40m a year are being reported. This moves pay beyond a simple hygiene factor. Even if you are happy where you are, an offer like that will get your attention. And conversely, if you are unhappy, a significant increase in income would get you to retirement quicker.
When do you let them go?
So, how would you respond as a managing partner?
Perhaps the first question is not how much you need to pay your stars, but what sort of firm you are trying to build. There will be partners worth fighting extraordinarily hard to retain. But there must also be a point at which matching an external offer changes the deal for everyone else. Retaining the individual may then come at the expense of the institution.
For me, understanding and strengthening the glue that binds your partners is still key. But that glue needs to amount to more than shared purpose and common vision. Partners need to agree what they expect from one another, the behaviours they value and, ultimately, what sort of firm they are trying to build. None of that removes the need to compete on pay. The broad range within which I was assuming a firm could retain its best people looks rather different when a competitor offers significantly more.
Proxy for performance
Perhaps the financial distinction is between the absolute and the relative. The absolute amount matters when an external offer is sufficiently large to change someone’s choices. But relative remuneration also matters because of what it says about how a partner’s contribution is valued compared with that of their colleagues. Pay is not simply financial reward; within a partnership, it is also a proxy for performance, and a signal of perceived value, status and fairness.
More than financial
The difficulty is that one number is being asked to do several things. Partner remuneration rewards today’s work, recognises the business and relationships a partner creates, reflects their wider contribution and, in an equity partnership, provides a return on ownership. Before arguing about the number, perhaps we need greater clarity about what it is actually paying for.
As a partnership, the question is then: how are we going to increase profits enough to attract and retain these partners? And if we cannot increase profits sufficiently, are partners prepared to redistribute the existing pool, giving those partners a larger share to reflect the financial value they generate, even though that means less for others?
This does assume that partners are on the same page in terms of the different aspects of partner contribution, with a fair, trusted and consistent approach to evaluating that.
That means looking beyond their own work. A partner’s relationships may generate profitable work for colleagues; they may develop the people who deliver it, or contribute expertise that improves what the wider firm can offer. Their financial contribution goes well beyond their personal billings, and firms need remuneration models that recognise that. The distinction is between value a partner produces personally and value they help the institution to produce. High-performing partners will increasingly be doing both.
Me first versus firm first
David Morley’s argument about the increasing polarisation of partner contribution goes further. He anticipates two stages. First, AI increases the premium on scarce senior expertise as it reduces the value of work below the partner. Over time, more of that value will accumulate within firm approaches to data, systems and proprietary know-how.
Broadly I agree, although in another possible future that value may just as easily accrue to the technology vendors as to the firms. If he is right about the second stage, the need to recognise contribution better and to lock in high performers is clear. Hence the case for more creative ownership models, particularly now that outside investment, including private equity, is on the table.
My own research on AI implementation points to a parallel issue and clear dichotomy: while AI requires the institutional behaviours Morley suggests, we can see that in some firms it is already driving partners to focus on individual productivity. “The most productive afternoon of my career,” one partner told me about using AI for the first time. “I didn’t need to deal or speak with anyone else.”
The partner who feeds the firm’s systems with their know-how is creating value that current models will not capture. The partner who uses those systems purely to increase personal output will look more productive than they are. Most remuneration models will reward the second and overlook the first.
If we want partners to share clients, develop colleagues and contribute their expertise to systems owned by the firm, we need to recognise that contribution too. Otherwise, we are asking for collective behaviour while rewarding something else.
But remuneration cannot carry the whole burden. If contributing to the wider institution are genuinely part of being a partner, this has always been about standards rather than incentives. Paying people differently is not a substitute for being clear about what the partnership expects of them.
Income or longer-term value?
That creates a distinction which traditional partnership has not always needed to confront: between annual income and longer-term value. If my expertise, relationships and know-how help create an institutional capability that continues to generate value after I have gone, is my share of this year’s profits sufficient reward? Or have I helped create something in which I should retain some economic interest?
The profession has confronted a version of this question before. A retained interest in institutional value after departure is, in substance, goodwill, and most firms abolished goodwill payments for good reason: they burdened incoming partners with the cost of buying out their predecessors and rewarded people for leaving. If the question is to be reopened, the case has to be that something is different now. Arguably it is. Know-how embedded in a firm’s systems is more identifiable and more separable than the reputation and relationships goodwill once purported to value.
There is, however, another side to that argument. Partnership is also about stewardship. Today’s partners benefit from the reputation, relationships and institutional capability built by those who came before them. Perhaps part of the ownership bargain has always been to create value that will be enjoyed by those who come afterwards.
Fear of missing out
Even as I say that, the ramifications for the rest of the partnership are clear. If partner A has to forgo profit for partner B, or to fund the firm’s development, they will need confidence in that shared future. What do they expect to gain, and over what period?
I remember very clearly a partner in my old law firm being both surprised and delighted by their profit share. It was more money than they had ever expected to earn and, in fact, more than they could spend in a year.
That feeling lasted only a few minutes. Looking down the list of partners, they discovered that someone they considered less capable had received more.
They were hugely disappointed. My colleague Paul Browne recalls a law firm partner putting it rather more bluntly: “It’s not that I have to do well. Others have to do badly.”
So clearly, a hard number is not the only answer. There is also what that number says about our standing in the partnership and whether we believe our contribution is fairly recognised compared with that of our colleagues. Hence, I am more sympathetic to keeping partner awards confidential than I was 30 years ago, having watched full disclosure sour collaboration between partners in several firms.
The changing bargain
Of course, some care is needed with the headline news. A handful of $40m guarantees tells us that a superstar market has emerged at the very top of the profession, not that pay has stopped being a hygiene factor for the typical partner in a strong firm.
What has changed is that a thin tier now sits outside any range a firm can sensibly set, and it is far from clear that the market has priced that tier correctly. Guarantees are dilutive for the partners who fund them, usually time-limited and paid on expected rather than delivered revenue, and the record of laterals delivering the book they were hired for is patchy.
So my original argument needs refining rather than abandoning. Money alone still does not motivate most elite partners. But we need to revisit two things: the impact of an external offer that resets the financial reference point, and the extent to which remuneration itself communicates value within the partnership.
The why still holds partners, but only within a range, and at the top that range has widened beyond what most firms can match.
That leaves each partnership with a choice that is less about the money and more about what it means to be an owner. Is an equity partner entitled to a share of this year’s profits, or responsible for leaving behind a stronger institution for those who follow?
For me it remains both.
A partnership that treats this as a pay arms race will lose it. A partnership that has answered the ownership question can decide how far up the range it is prepared to go, and what it will change for everyone else to get there. A firm that cannot will find that no number, however large, holds it together.
So no, it cannot only be about the money. But it is about the money more than I once thought.
Moray McLaren is a partner and co-founder of Lexington Consultants. He is a professor at IE Law School in Madrid, a member of the Møller Institute at Cambridge University. His research on law firm partner remuneration is available at the website of the Harvard Law School Center on the Legal Profession.
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