At Least a $5M Book of Business: Partner Expectations Tighten

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At Least a M Book of Business: Partner Expectations Tighten

More top law firms are setting earnings expectations for partners — seeking to be explicit about origination or business requirements — as firms place more emphasis on profitability now.

The exact expectations and penalties vary by firm. For instance, more top law firms have initiated earnings expectations for their equity partners, such as at least $5 million to $7 million in business each year, said Mike Parrillo, a recruiter in New York and founder of Parrillo Search Group.

“Law firms are getting more serious about setting clear expectations on business and even specific benchmarks for certain partners. This comes as firms are thinking more critically about how profitability should be shared,” he said in an email.

Law firms with primarily institutional client relationships may not be checking levels of business each year for each partner but still every few years, and many are looking at it much more closely than they ever have, he said.

Other top law firms are holding back compensation points for not meeting collections or realization goals.

The explicit expectations boil down to competition. There’s more of it now, especially at the highest end of the market, and firms are providing clearer incentives for superior business generation. The related push to add tiers to the partnership has also forced firms to be more transparent about their expectations for equity partner.

“We are seeing a trend of firm management being more transparent when it comes to expectations at the equity partner level, whether that relates to an hours target or whether it relates to originations targets, there is a more outward-facing expectation being given at the partner level than there was historically,” said Scott Yaccarino, a recruiter and co-founder of Empire Search Partners.

Of course, expectations have always existed. At the most profitable firms especially, there’s always been an ethos that incredibly hard work was a given, in order to make and remain a partner. But firm leaders are being more communicative about what exactly that hard work looks like now, Yaccarino and others said, in part because “there’s just a lot more competition at the highest end of the market” and firms are more metric and business-oriented.

“It’s the firms’ way of basically saying, ‘If you are not actively participating in the growth that the firm is experiencing, you’re not going to share in that in the same way you might have historically,” he said, adding it was “a natural evolution of the broader legal services market” as more law firms become billion dollar businesses.

Partner expectations may vary by the firm and sometimes within partnerships.

If a partner is bringing in, say, $40 million in business, they’re not going to be expected to also make a 1,800 hours target, for example, added Susan Mendelsohn, a Chicago-based legal recruiter. The race to increase profits per equity partner — which itself serves as a mechanism and recruiting tool for outperformers — is the reason firms are being more strict about partner expectations at the moment, she added.

“There are firms really trying to increase their profits per partner. They want to be Am Law 10 or 15 or 20, so perhaps being more strict in increasing or enforcing those levels. ‘Ok, if you want X points, you need this much in collections, plus realization in the 90s,'” she said.

Mendelsohn added that there are exceptions, of course. Some firms believe trying to grow in profits per equity partner too quickly can sacrifice culture. But growing profits is also a core business objective.

Nonequity and ‘Super Tier’ Push

The increase in firms moving to two-tiered partnerships, and even adding “super tiers,” has also fed into the dialogue about earnings and other performance expectations for partners, noted Kristin Stark, a law firm consultant and a principal at Fairfax Associates.

Especially as billing rates have escalated to new heights, both equity and nonequity partner performances have risen, she noted. For those nonequity partners, she said, “it begs the question: what size book of business is large enough to merit equity promotion?”

Outperformances like that can also create more of a gap within the equity partnership. Indeed, the spread between the highest and lowest-paid partners in the Am Law 100 increased in 2023, as more firms made “tectonic” changes to their comp systems and pulled a number of levers to get more money to top performers, including increasing bonus pools and moving money from the bottom to the top of the performance ladder.

“In the equity group, you have people with really large books, and some people with more modest books. And when there’s enough with the large books, they start to feel like they’re carrying others on their backs,” Stark said. “And they say, ‘Shouldn’t we establish higher expectations?'”

She said so-called “super points” or “super tiers” — which allow firms to stretch their compensation scales an order of magnitude for the very highest performers, but without locking them in at those levels in perpetuity — are also an outgrowth of this discussion.

“By virtue of a super tier existing, it is raising the bar for everyone, right? Part of that ties to compensation: firms are providing really clear incentives for superior business generation,” Stark said. “So when you set those clear rewards for business generation, more and more people try to meet those rewards, try to achieve it.”

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