• Over one-third of Am Law 200 firms plan to revamp equity partner pay models within the next two years.

• Top partner compensation has surged to as high as $30 million annually, with pay spreads stretching to 15:1 in some firms.

• Bonus pools are growing, with some firms allocating up to 25% of net income for discretionary bonuses.

• Nontraditional approaches like black box systems, nonequity tiers, and fixed lateral guarantees are reshaping compensation strategies.

As 2024 ends, Big Law firms are fundamentally rethinking partner compensation. A Citi Hildebrandt Client Advisory report found that more than one-third of nearly 200 firms plan to adjust their equity partner models by expanding pay spreads or revising performance criteria, according to Law.com.

“This trend “is absolutely a part of the bigger story of a rapidly evolving market, with respect to partner retention, partner recruiting, and a necessary adjustment to compensation models to accomplish both of those things,” said Scott Yaccarino, co-founder of Empire Search Partners. 

Elite firms are stretching partner pay limits, with top earners making upwards of $30 million. Far from being a bubble, experts predict demand and lateral recruitment will keep these figures climbing through 2025 and beyond.

New Models and Structures

Firms are adopting diverse approaches to compensation. Traditional models like lockstep pay are giving way to more flexible systems:

• Nonequity Tiers: Firms such as Cravath, WilmerHale, and Cleary Gottlieb introduced nonequity tiers, enabling them to manage compensation dynamically without full equity integration.

• Super Tiers: Latham & Watkins added a “super” points tier to reward top-billing partners and align pay with performance.

• Black Box Systems: Paul Weiss moved to a nontransparent pay model, reducing visibility into partner earnings while retaining flexibility.

Simpson Thacher, Davis Polk and Weil, Gotshal & Manges are also reshaping their compensation systems, with a focus on lateral recruitment and rewarding client relationship expansion.

Bonus Pools Surge

Bonus pools are another tool firms are leveraging to stay competitive, using this approach more than ever before, according to Brad Hildebrandt, co-author of the Citi Hildebrandt report.

• These pools, traditionally comprising 5-8% of net income, are now reaching 10-12%, and in some cases, up to 25%, according to a December report from Fairfax Associates.

• For example, Cravath’s recent modifications included a 15% partner point contribution to fund bonuses, distributed at firm management’s discretion.

Increasing Flexibility in Lateral Compensation

The lateral market is driving many of these changes. Firms are experimenting with fixed guarantees and equity shares to attract star talent. These strategies provide financial security while incentivizing performance.

There’s “without question” more flexibility in lawyer pay now, said Frank Ryan, global co-chair of DLA Piper. "There needs to be more flexibility in the profession to take advantage of the uniqueness of certain practices and individuals in the profession,” he said.

Capital contributions are also rising, with firms requiring equity partners to invest more to fund lateral growth. “As firms look to grow, relying on their equity partners to fund that growth makes sense, especially as partner capital increases have not kept pace with net income growth,” the Citi report stated. “Relying on partners to provide capital also creates more ‘skin in the game,’ especially important in an active lateral market.”

Larger Spreads, Bigger Stakes

Pay disparities are growing, with spreads between the highest- and lowest-paid partners increasing from 9.8:1 in 2022 to 10.3:1 in 2023, according to ALM data. Some firms now approach 15:1 spreads, reflecting an industry-wide shift, according to Hildebrandt.

Alisa Levin, co-founder of the legal search firm Greene-Levin-Snyder, described the changes to law firm compensation as “tectonic.” "It's a whole different world,” she said.