Top US law firm moves away from ‘lockstep’ partner pay as rivals circle

afr.com:

New York | Cravath, Swaine & Moore, the elite US law firm that has customarily set the pay standard for its peers, has established a non-equity partner tier, in a further departure from the “lockstep” partner pay model.

In a company-wide note sent on Tuesday, presiding partner Faiza Saeed said the firm had “established the salary partner role” to help it “retain and promote extraordinary people at all levels”.

Cravath is facing competition from Wall Street rivals able to offer higher rewards to in-demand partners.  

The move allows the 204-year-old firm to remunerate more junior staff as they come up.

Rivals such as Kirkland & Ellis and Latham & Watkins – both of which have poached talent from Cravath – already employ a non-equity system, alongside a more traditional equity partner tier, as do other Wall Street competitors.

Ms Saeed said Cravath was “evolving with our marketplace ... with the objective of rewarding those who share our values and objectives”.

The prestigious firm, whose pay scale had been used as a benchmark for the industry’s big players, has gone through a series of changes over the past few years, as profitability at younger, more commercially minded competitors soared.

In 2021, Cravath overhauled its pay structure by abandoning its pure “lockstep” model, which rewarded partners based on their seniority, rather than their performance. The modified system, while still largely following the “lockstep” model, allowed the firm to remunerate “franchise builders” based on merit, Saeed said in her note.

The decision to shift further from the pure lockstep model – which in the past Cravath hailed for promoting collegiality – highlights how it has been under pressure to change to avoid losing talented lawyers