Elite New York law firm Cravath, Swaine & Moore is overhauling its pay structure to reward partners based on merit, removing one of the last bastions of so-called pure lockstep pay from the industry.
Cravath, one of the oldest law firms in the US, will shift from its renowned remuneration structure in which partners are paid solely on rank, marking a major turnround for a firm that has long set industry standards on pay and culture. Its new model will incorporate performance elements as well as taking account of seniority.
In a memo seen by the Financial Times presiding partner Faiza Saeed said the move to a more merit-based system would allow Cravath to “thrive in a dynamic marketplace while maintaining the values and culture . . . that define our firm.” The news was first reported by the Wall Street Journal.
Cravath was one of the last remaining firms to operate a “pure lockstep” model. It is designed to foster collegiality and equality among partners but has come under pressure as rival firms have offered eye-popping pay deals to lure the best lawyers.
In recent years prestigious law firms including the UK’s Allen & Overy have introduced greater merit-based elements to their pay in order to compete with deep-pocketed rivals willing to poach their partners.
Cravath partners took home on average $4.6m last year but other firms have proved far more profitable including Wachtell, Lipton, Rosen & Katz, whose partners pocketed some $7.5m on average according to data from the American Lawyer magazine. Firms like Kirkland & Ellis have been able to hire the most in-demand partners promising high rewards based on performance, through a remuneration model known as “eat what you kill”.
“This is a big moment,” said legal headhunter Mark Jungers. “It’s further recognition that Kirkland runs the market . . . Lockstep used to mean partners were partners for life . . . This is all the signal anyone needs that everything is different now.”
Cravath was renowned for partner loyalty but in recent years top lawyers have left including corporate lawyer Damien Zoubek, who joined Freshfields Bruckhaus Deringer in September. In 2016 Cravath was rocked by the exit of corporate star Scott Barshay, who left for Paul, Weiss, Rifkind, Wharton & Garrison on a deal worth more than $10m a year.
Cravath, which is more than 200 years old, is generally viewed as having created a template for modern law firms through its “Cravath system” — a set of management principles including lockstep compensation and a heavy focus on training. It sets the market benchmark on associate pay.
“Cravath was the birthplace of the modern law firm,” said Junger, “and one of the tenets of the modern law firm was lockstep compensation.”
The firm adopted its pure lockstep almost 50 years ago, and Saeed said the new “modified lockstep” system would “continue to strongly emphasise rewarding the performance of the firm as a whole”.
The policy shift leaves few remaining lockstep firms in the world, including Debevoise & Plimpton in the US and London-based Slaughter and May. The latter has successfully maintained a stable lockstep partly by dint of its decision to eschew large-scale international expansion.
In a statement Saeed said: “Cravath’s partnership has made the decision to move to a modified lockstep compensation system at the partner level.
“This decision will advance our strategic objectives so that we can continue to thrive in a dynamic marketplace while maintaining the values and culture — including our ethos of shared success — that define our firm.”