Compensation reworked for firm stars

CLEARY GOTTLIEB STEEN & Hamilton managing partner Mark Walker is old-school when it comes to partner compensation. He sees no reason to change Cleary’s seniority-based lockstep scheme, in which the spread between the highest- and lowest-paid partner is less than 3-to-1. It’s a no-hassle system-no long meetings explaining bonus decisions and no disputes among partners over credit for bringing in business. And it is the foundation of Cleary’s culture, Walker says, which emphasizes the collective over the individual. If the firm is not a magnet for hot lateral candidates who want to be paid like A-Rod, that’s okay with Walker. “My view is that if someone says I’m not going to Cleary Gottlieb because another firm is guaranteeing me a salary of X, then they don’t belong at our firm anyway,” he says.

That’s a common sentiment among the most profitable firms in The Am Law 100, where old-fashioned compensation systems remain firmly in place. Leaders of firms such as Debevoise & Plimpton; Cravath, Swaine & Moore; and Simpson Thacher & Bartlett say they don’t see a need to adjust their pay scales to accommodate star partners. With profits so high at those firms, even low spreads-frequently less than 4-to-1-give few partners reason to complain. “We look at ourselves all the time,” says Evan Chesler, presiding partner of Cravath, a firm with a spread of 3-to-1 and profits per partner of $3 million in 2006. “There’s not been any serious consideration to change our lockstep system.” It’s easy to understand the resistance to change. The most profitable firms don’t often lose partners to other firms. That’s never happened at Simpson Thacher 2006 profits per partner of $2.5 million, says managing partner Philip “Pete” Ruegger III. Like Cleary’s Walker, Ruegger says that Simpson’s compensation system is designed to promote the institution over the individual, with benefits accruing to both. Simpson’s bedrock clients, like The Blackstone Group LP and Kohlberg Kravis Roberts & Co., are clients of the firm, not of any individual partner, so all partners have a stake in the revenue they generate.