As competition for talent intensifies at the top of the legal market, Wall Street firm Fried, Frank, Harris, Shriver & Jacobson has undertaken significant changes in the last few years, including overhauling its compensation system to become more competitive, tripling its nonequity partner ranks and adopting a partial black box model for partner compensation.

The moves, described to ALM by several attorneys familiar with the firm, are symbolic of the increasingly fierce lateral market among elite firms. They come as other firms have also adjusted their pay models, amid growing pressure to shift away from lockstep seniority-based partner compensation.

For Fried Frank and others, the structural changes have brought flexibility to pay star partners ever greater sums.

Three legal industry sources with knowledge of some Fried Frank compensation details, speaking on condition of anonymity, told ALM that Lawrence Barshay, a top rainmaker at the firm, has lately been paid at least $11 million a year. Barshay, whose book of business is said to be more than $50 million a year, is head of Fried Frank's asset management practice. (His brother, Scott Barshay, was reportedly paid nearly $10 million after joining Paul, Weiss, Rifkind, Wharton & Garrison from Cravath, Swaine & Moore in 2016.)

Fried Frank declined to comment for this article.

While Fried Frank was not completely lockstep in the past, partners in good standing were expected to get a certain number of points as they became more senior, and partners could see what other partners were making.

Moving away from a point system in 2015 allowed the firm to set a target compensation for each partner. The firm will pay at, above or below it depending on the firm's performance in a given year. Some sources familiar with the firm said the system without points has allowed for more flexibility and discretion to award some partners even higher pay than before the change.

Meanwhile, the spread between the highest paid to the lowest paid partners has substantially increased, attorney sources said. Indeed, according to ALM data, Fried Frank's ratio of the highest paid to the lowest paid partner (including equity and nonequity partners) increased to 13:1 in 2017 from 11:1 in 2016.

Fried Frank has also moved to a partial black box system, where all partner pay is not disclosed. However, internally, the firm reveals to partners the compensation of its 10 highest-paid partners, as well as pay to partners on the firm's compensation committee who are not on the top 10 list, attorney sources told ALM. The firm also reveals a scattergram of anonymous partner pay so that partners can see how their pay stacks up against the rest of the partnership.

Amid these changes, the firm has seen explosive profits per partner growth over the last five years. It has also achieved record revenue growth and, some would argue, safeguarded its ability to keep top-performing partners and attract star laterals.

In the last two years, Fried Frank has added finance partner Adam Summers from Cadwalader, Wickersham & Taft; capital markets partner Meredith Mackey from Davis Polk & Wardwell; Matthew Parrott, the former head of Katten Muchin Rosenman's New York real estate and distressed debt litigation group; and Michael Keats, former co-head of the financial services litigation and enforcement practice at Stroock & Stroock & Lavan.

At the same time, the new compensation model represents a shift in culture for the firm, which saw a number of lateral departures in the years since David Greenwald rejoined in 2013 from Goldman Sachs. Greenwald became sole chairman in 2014 when Valerie Ford Jacob, who led the firm for 11 years, stepped down. She is now a partner at Freshfields Bruckhaus Deringer.

While Fried Frank has seen a 124 percent increase in profits per equity partner from 2012 to 2017, the firm has expanded its nonequity ranks and thinned out the equity tier. Fried Frank had 109 equity partners last year, down from 134 in 2012, according to ALM data. Meanwhile, it had 23 nonequity partners last year, up from seven in 2012. (Nonequity partners are those who receive more than half their compensation on a fixed-income basis, according to American Lawyer's methodology.)

Greenwald has implemented a tight focus on the firm's finances and profitability. He told Forbes in 2016 that “all law firms are on a path from being small partnerships in which partners were involved in all decisions to larger organizations with more streamlined and business-like processes. The partnership model has many strengths, but there are risks associated with it too.”

He said at the time that the firm moved to a merit-based system from a modified lockstep because “the merit-based approach was largely aligned with the way in which we determined compensation anyway. So it made sense to formalize the process. In doing so, we are strengthening our ability to attract and retain the very best talent. A merit-based system enables us to reward the behaviors we want and to hold people accountable.”

Fried Frank is far from alone in revising its compensation system to become more competitive. As the New York Law Journal previously reported, Simpson Thacher & Bartlett has lately broadened its pay scale for partners. Meanwhile, some Magic Circle firms have broken their lockstep structure to compete in the U.S.

“Tons of firms are looking at their compensation systems,” said law firm management consultant Lisa Smith, who often sees changes in partner pay and bonus pools result in a wider spread between the lowest to highest paid partners. “The spread is widening, but it's not like everybody is moving to the top. It's only a few outliers,” said Smith, a consultant at Fairfax Associates who spoke generally on partner compensation trends.

Sometimes internal tensions arise from those compensation changes. “One of the things that keep managing partners up at night is how do you get the right balance. There is a little bit of a zero-sum game,” she said. Adding the extra money given to star performance has “got to come from somewhere,” Smith said. “That's what gives some people some pause: Can you have that big of a gap?”

Overall, she said, firms are seeking a delicate balance to reward their top business generators and “figure out how to reward teamwork and encourage partners to collaborate.”