Tag Archives: Partner Compensation

Biglaw Partners: Are You Capturing A Fair Share Of Your Revenue?

If you are a Biglaw partner, you may have heard this compensation rule of thumb: you should be taking home a third of the revenue you generate for the firm. The 33% rule has the advantage of being simple, and it makes for a reasonable starting point. But to really know whether you are capturing a fair share of the value you create, it’s important to consider some other factors.

Your hours vs. your team’s hours

The first distinction you’ll want to make is between the hours you bill and those billed by the people working for you, such as associates and service partners. The 33% rule is supposed to apply to all revenue for which you are responsible. But we can make things more precise by breaking that revenue into two segments.

As a general rule, you should make about 40% of revenue from hours you billed personally. As for the hours billed by members of your team, it depends how profitable those lawyers are for the firm. Associates at some firms are substantially more profitable than others. The more profitable your associates, and the more leverage your book has, the greater the share of your team’s revenue you can expect to take home.

RPL and leverage are the key metrics

To understand what share of team revenue should accrue to you, consider how your firm stacks up on two key metrics: revenue per lawyer (RPL) and leverage.

RPL is critical because it is so poorly correlated with associate salaries. You could imagine a different compensation model in which firms paid associates a standard share of the revenue they generated, either individually or on average across the firm. But as we know, that isn’t how this industry works. Instead, all top-tier firms pay associates more or less the same salaries based on class year. As a result, partners at firms with relatively high RPL get to divide a much larger profit pool than partners at “top” firms with low RPL.

Within the Am Law 100, the spread between high and low RPL is striking. Firms at the low end have RPL of around $500,000. For example, Lewis Brisbois is the lowest of the Am Law 100, at $434,000. Firms at the high end have RPL close to 4X that of the low-end firms. Sullivan & Cromwell, for example, clocks in above $1.9 million. (Wachtell is in a league of its own, with RPL in excess of $3.6 million.) Granted, a Sullivan & Cromwell associate earns higher total compensation than a Lewis Brisbois lawyer in the same class year, but that multiple is nowhere near 4X.

Now, RPL isn’t everything. We also have to consider leverage. If a partner’s book can feed a relatively large number of associates, the proportion of the team’s revenue that should accrue to the rainmaking partner will be higher. And to be fair to Lewis Brisbois, their partnership is doing well on that dimension, with leverage of 9.99 (second-highest among the Am Law 100).

How does your practice compare to the firm average?

Your firm’s overall RPL and leverage are important considerations, but unless the partnership has a pure lockstep compensation model, the performance of your practice relative to the firm average is also critical. A good starting point for thinking about this dimension is to compare the firm’s profit margin to the share of your revenue that you are taking home. For example, let’s say your firm’s profit margin is 45%. Are you being paid 45% of the revenue you are generating?

If not, consider how your practice may differ from others in the firm. Does it have lower leverage than the firm average? Are you personally billing fewer hours than your peers in the partnership? If the answer to both of these questions is no, then your compensation should reflect the firm profit margin. If it doesn’t, you are likely underpaid, and you may want to consider your options.

Who Is Better Compensated: Elite Biglaw Partners Or Top General Counsel?

If you’ve paid any attention to the ballooning compensation figures of Biglaw partners in recent years, you already know that it pays to be an equity partner at a large firm. Meanwhile, as average partner compensation escalates, top in-house lawyers are being left behind.   

In 2020, a Major Lindsey & Africa survey of partners in “Am Law 200 size firms” found average compensation of above $1 million. The ALM Intelligence 2020 Law Department Compensation Benchmarking Survey found general counsel and chief legal officers earned average total compensation of $573,000. So, as a general rule, it’s more lucrative to be a Biglaw partner than a general counsel.

But what about at the very top end of the profession? In this article, we take a look at the pay packages of the top 100 highest-paid general counsels, in comparison to partners of top Biglaw firms (as measured by profits per equity partner). We find that on a cash compensation basis, equity partnership is more lucrative than being a general counsel. But the story is more complicated when taking stock options into account.

A quick note on sources. For general counsel compensation data, we look at the top 100 highest-paid GCs as listed in the 2020 ALM Intelligence GC Compensation Survey. This data set is not comprehensive. For one thing, ALM compiles its data from proxy statements filed with the SEC, so only public companies are included. Our source for Biglaw partner compensation is the 2020 edition of the Am Law 200 ranking.

It’s hard to outearn a top Biglaw partner

The General Counsel Compensation Survey ranks general counsels based on total cash compensation. The top 100 highest-paid GCs earned total cash compensation of $2.42 million on average. We don’t know how much the 100 best-paid Biglaw partners earned in the comparable period, but we can say that the top firm in the Am Law ranking — Wachtell — had 85 equity partners and profits per partner of $6.33 million.

Just two general counsels took home cash compensation higher than $6.33 million: Alan Braverman of Disney ($8 million) and Eric Grossman of Morgan Stanley ($6.94 million). Meanwhile, 38 Am Law firms had profits per equity partner in excess of the $2.42 million average general counsel cash compensation.

How does this compare to the situation a decade earlier? Analyzing the 2010 editions of the same surveys, we find that not much has changed. Based on the 2010 General Counsel Compensation Survey, the top 100 general counsels took home average total cash compensation of $1.56 million. Wachtell’s profits per partner were $4.3 million, a figure exceeded by just one general counsel. 28 Am Law firms had higher profits per equity partner than the $1.56 million general counsel average.

What about compensation growth over that ten-year period? From a growth perspective, who did better: the top 100 general counsels or the partnership of the top Am Law firms? The table below shows the results, ranked by growth rate. The law firms in the table were the top 10 firms in the 2010 Am Law 200. We see that general counsels fall in the middle of the pack, outpacing some partnerships and trailing others.

Group (equity partnership or GCs)10-year compensation growth
Kirkland & Ellis108%
Simpson Thacher83%
Paul, Weiss75%
Cravath63%
Sullivan & Cromwell57%
Top 100 GCs55%
Cahill Gordon51%
Wachtell47%
Quinn Emanuel46%
Boies, Schiller17%
Irell & Manella8%

But stock options can make a big difference

The comparisons above obscure some important factors. On the in-house side, it is critical to note that the very highest-earning general counsels receive a substantial portion of their compensation in the form of equity. Taking stock options into account, some general counsel roles start to look considerably more attractive. For example, revisiting the 2020 surveys, when accounting for equity compensation, the number of general counsels topping Wachtell’s profits per partner rises from two to 41. And some of the general counsels have total compensation that would exceed that of even the highest-paid Biglaw rainmaker. For example, Chewy GC Susan Helfrick had total compensation of $30.3 million (of which less than $1 million was in cash). Apple GC Kate Adams had cash compensation of $3.56 million, but her total compensation was $25.2 million.

On the law firm side, profits per equity partner gives little indication of the rewards that flow to top rainmakers. Firms vary widely in their compensation ranges. At the most traditional end of the spectrum, a firm’s highest-paid partner might take home 4x the pay of the lowest-paid partner. In contrast, at a firm with a strong eat-what-you-kill culture, that ratio may be 10x or higher. A 2018 New York Times article about the lateral talent wars reported on eight-figure pay packages for star hires at firms like Kirkland & Ellis and Paul, Weiss. It’s impossible to know how many Biglaw attorneys have breached $10 million, but the lateral market for partners with a strong book of business remains red hot.

Conclusion

There are a lot of reasons why an attorney might prefer to be a general counsel than a law firm partner. But viewed strictly through the lens of compensation, high-performing lawyers are typically better off staying on the law firm track. Of course, that doesn’t necessarily mean they should stick with their current firm. With Biglaw partnerships increasingly diverging in their approaches to compensation, it’s a mistake to assume that a partner with a given book of business will be paid similarly at any comparably prestigious firm. Productive partners have a variety of options — and it pays to know about them.