As more and more Biglaw firms move toward black-box compensation systems for their partners, one elite firm is doing things a little differently. As Biglaw associates know all too well, the best way to keep a top-performer around is to offer big bonuses — and the same premise apparently works for partners.
Latham & Watkins — a firm that brought in $5,321,007,000 gross revenue in 2022, putting it at No. 2 in the Am Law 100 — seems to have increased its bonus pool for partners, growing its profits reserved for this purpose to 15%, while at the same time limiting the number of partners who actually receive these bonuses. For what it’s worth, other firms tend to reserve about 7 to 8% of profits for partner bonuses. Here are some additional details from the American Lawyer:
Latham’s growing profit pool has allowed the firm to pay some of its highest-performing partners in the range of $12 million to $15 million, the people said. Between 2018 and 2022, the firm grew net income from $1.68 billion to $2.86 billion, according to ALM data, an increase of 14.1%. That growth, combined with how the firm is engineering bonuses, has enabled a hefty spread from highest- to lowest-paid partners. Not only has the firm succeeded in the lateral market in recent years as a result, but this success has also likely helped catalyze changes at other firms with vestiges of a seniority-based lockstep system.
Rather than changing their share point system, as other firms have done, Latham has gradually shifted its profit reserves to allocate more money for partner bonuses. These increased bonuses are a way to pay partners what they — and perhaps more importantly, other rival firms eager to poach them — perceive to be their fair market value.
“The wider partnership is paying a little bit of money to competitively compensate the firm’s top people,” New York-based recruiter Mike Parrillo told Am Law — and in Latham’s favor, it seems to be working.
Latham & Watkins Grows Bonus Pool With 15% of Profits, as Firms Seek Flexibility to Reward Top Earners [American Lawyer]
Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter and Threads or connect with her on LinkedIn.
