How Much Do Law Firm Partners Bank Each Year?
Albert Goodwin, law firm business writer
The question of what the law firm partner salary level is intrigues some and bewilders others, with compensation figures often confidential.
The issue is therefore more complex and partner earnings can fluctuate not only due to economic factors, but also the firm location, type of work and other factors.
Partners practicing in major legal markets often earning more than those in smaller markets, obviously. But some specialist lawyers working in small markets can extend that expertise – and their earnings – accordingly.
Not all law firm partners make millions. Some certainly do and we have recently reported on the $8 million-a-year earnings from Kirkland & Ellis, for instance.
Paul Weiss saw profits per equity partner exceed $6.5 million in 2023, the highest they have reached.
In the influential Major, Lindsey & Africa’s 2022 Partner Compensation Survey, partner earnings that year reached $1.12 million that year, which is the highest since the recruiter started its survey in 2010.
By contrast the National Association for Law Placement’s 2023 Associate Salary Survey report found that the median base salary for first-year associates was $200,000.
But when we talk about ‘law firm partner salary’ levels we can also be confusing the situation between the equity partners – sharing the loot between themselves – and the ‘salaried partner’ who shares less loot, but has the partner status.
The ‘salaried partner’ is an increasing trend for many big law firms, as we can see below.
Economic Influences on Salary Levels
Also there are important economic conditions that affect salary levels for partners in both the US and the UK, as expected.
During robust economic periods, law firms often experience an uptick in demand for legal services which in turn can lead to increased partner salaries.
In the UK, for example, the introduction of General Data Protection Regulation (GDPR) resulted in a surge of legal work around compliance, which potentially impacted partner salaries given their alignment with firm revenues.
So too with major transactions work, cross-border deals, M&A work and so forth. The major law firms handling these jobs in good times make big money with equity partners generating multi-million dollar packages and their ‘lesser’ salaried partners also taking home handsome, seven figure sums.
Thomson Reuters reported that midsize law firms in the US saw a 1.8 percent rise in demand in early 2023, which will often translate to higher compensation for partners.
Conversely, unstable economies could see firms face declining demands, as evidenced by Am Law 100 firms which observed a demand contraction of 1.5 percent around the same time.
In the US, law firm partners can see average compensation figures soaring to record-breaking heights, with a significant distinction between equity and non-equity partners.
On the other hand, UK firms may operate with more stringent regulations and a differing business culture that affects overall partner pay structures.
The robust growth of London-based law firm earnings, largely due to the increased presence and competition from the more aggressive, US-based law firms as evidenced for instance by the massive earnings growth generated by firms like Paul Weiss with the deal made for major rainmaker Neel Sachdev.
The ‘salary surge’ in London law firms is something we have written about previously and continues to provide upward momentum for law firm partners and associates.
Banking Millions
Not all partners rake in millions like the Kirkland & Ellis partners and the others nudging at K&E’s heels in the law firm partner earnings game.
While attaining partnership status typically implies a higher income compared to non-partners within the same firm, it doesn’t always translate to earning millions annually.
But it does mean some high hourly rates and working time at the office.
Within law firms, the salary structures reflect the hierarchy and partnership status of the lawyers with differences in equity stakes and performance often leading to significant variance in compensation levels.
The Major Lindsey report referred to above showed that the average time billed by partners in the US firms surveyed reached 1,721 hours, “a whole week.”
And the survey showed that corporate partners reported the highest average total compensation at around $1.49 million – a 26 percent increase over the previous year – with the second highest percentage being the litigators coming in at an average pay increase of 17 percent at $1.05 million.
The Rise of the Salaried Law Firm Partner
The increase in the number of law firms having salaried partners is another noticeable trend and one that needs to be taken into account when assessing what law firm partners earn.
Partners can be equity-sharing or salaried, in general terms. And the trend towards lifting the numbers of salaried partners continues amongst the most influential big firm players.
Kirkland & Ellis, as the world’s most profitable firm, has one of the largest nonequity partner tiers of any of the biglaw firms.
It does so to move away from the lockstep partnership pay model, retain flexibility, enhance competition among its legal talent, and to also provide the spoils to be allocated to ‘partners’ who can move to equity status in due course, retaining another channel to the partnership.
Even that doyen of Wall Street law firms, Cravath Swaine & Moore, have adopted the salaried partner as Bloomberg Law reported recently. The new partnership tier was created in 2021 according to Bloomberg.
To have a firm of Cravath’s size and profitability adopting the salaried tier demonstrates the increasing move towards salaried partners.
Paul Weiss is another firm developing the two-tier partnership structure. According to the American Lawyer, the firm saw its revenues reach $2 billion in 2023.
Major law firms like Cravath and Paul Weiss are changing their partnership and compensation structures in the face of competition and in their need to recruit legal talent and retain their rainmakers.
Increased flexibility with salaried partners lets them provide more opportunities – more money at the top level (equity partners) and more opportunity at the lower level to bring in the salaried partners.
According to the 2024 Client Advisory from Hildebrandt Consulting and Citi’s Global Wealth at Work Law Firm Group, 83 percent of Biglaw firms expect to increase the size of their income partner roles in the next two years.
Others are following suit with the two-tier partnerships.
Among other major firms using salaried partner levels are Simpson Thacher & Bartlett, who introduced a nonequity partner tier in 2019 as did Willkie Farr & Gallagher.
Davis Polk & Wardwell; Cleary Gottlieb Steen & Hamilton; Debevoise & Plimpton and Wachtell Lipton Rosen & Katz remain single-tiered partnerships at present.
The salaried partner move will certainly continue as the major firms increase the numbers in these ranks.
Changing the Law Partner Pay Model
Another factor that is evolving is major firms moving from the ‘lockstep’ remuneration model to permit big pay days for legal stars.
The lockstep model, a mainstay for many major firms including all the major UK law firms, rewards seniority. But being ‘senior’ is not enough in the dog-eat-dog world of highly competitive legal work.
Consider what American Lawyer reported earlier in 2024 about moves by Clifford Chance to change their lockstep remuneration model:
“In 2015, the firm introduced a mechanism to its 100-point lockstep that allowed the firm’s leaders to move partners up to 115 and 130 equity points, but also down to 70 points. Then in 2017 a ‘super-pointer’ tier was introduced to reward star performers in London and New York. The change seven years ago enabled the firm’s best partners to exceed 130 points.
“Since then, the firm has further lengthened its lockstep to around 280 points, one person said. Those at the top of this scale earn in the region of £2.8 million, two of the people said, with the strongest performers able to break through the 280-point plateau; the firm’s current top of equity stands at £4.8 million. Now, with partner retention a growing concern for law firm leaders, the firm is expected to once again lengthen its super-pointer ladder, allowing for more competitive pay.“
The ‘super-pointer’ moves to retain legal talent is set to continue and expand in the face of the increased pressure to make law firm partner salary levels more competitive – ie, paying the star salaries to legal winners.
The UK Partnership Earnings
Across the pond in the U.K., Magic Circle firms such as Allen & Overy and Freshfields have experienced some significant partner pay increases. They witnessed an increase in PPP to £1.7 million and £1.8 million, respectively, in 2018/2019 but have since increased their earnings further.
Allen & Overy (soon to be Allen Overy Shearman Sterling) were reported in The Times as having an average pay for partners who have a full slice of equity in the firm at £1.95 million, dropping to £1.82 million.
Silver Circle firms like Macfarlanes and Travers Smith also saw significant rises (£1.7 million and £1.25 million, respectively, as of 2018/2019 and so the latest figures will doubtless be higher.
While numerous top law firms dole out PPPs averaging £1 million or more, many partners earn incomes ranging from five to six figures.
The Annual Law Firms’ Survey 2023 by PwC UK provides insight into the compensation trends among top law firms in the UK. The survey reveals a steady increase in compensation with key performance indicators shining a spotlight on successful practices.
The Equity Partner Issue
Remember that there’s more to a partner’s earnings than meets the eye.
While the figures mentioned above may seem impressive, they don’t necessarily equate to take-home pay.
Equity partners often have substantial financial obligations, including repayment and interest on partnership loans, contributions to their pension funds, and income tax as self-employed individuals and the deductions can significantly impact actual ‘take home’ earnings.
But, there again, we all have obligations like tax that affect what we take home. It’s just that most big firm partner salaries are more lucrative than many.
Key Equity Partner Considerations
Partner compensation for equity partners varies based on several factors.
- Partners aren’t salaried employees; they receive a share of the firm’s profits, which can fluctuate monthly.
- The size of a partner’s share depends on various factors, including their equity points, partnership status (junior vs. senior), client portfolio, and performance.
- A partner’s compensation is often reflective of their book of business and contributions to the firm’s success, and may include elements like profit-sharing based on seniority, client work, and overall firm profitability.
- Each firm’s structure, hierarchy, and partnership agreement terms influence partner compensation. Their remuneration is also affected by factors such as responsibilities for matters such as business development, setting strategic goals, and managing client relationships.
- What are some of the average earnings for junior and senior partners in general terms?
- $350-575k: Average income for junior partners at large firms, including non-equity partners, during their initial years.
- $3-10 million: Earnings for top lawyers at big law firms in the U.S. and increasingly among major UK law firms, particularly the magic circle firms and the US-based big law firms.
While some young partners may achieve seven-figure incomes early in their careers, others may earn less than senior associates initially due to taxes and other deductions that affect their earnings.
Big Money Earnings – The Ups and Downs
Remember that the risks of part-owning a business, such as equity partners, means that earnings can also decline.
For instance, according to the AmLaw 100 rankings for 2023 saw some firms’ equity partner earnings decline, the largest being Cadwalader Wickersham & Taft.
Read More –
Kirkland & Ellis PEP Growth Creates $8 Million Dollar Men (and Women)
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