Biglaw

Biglaw Lateral Partner Compensation Guarantees Are All The Rage Again

Dewey Know What's The (Old) New Hotness In Partner Compensation?

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lawyer briefcase moneyEverything old is new again. That’s more than some cliche thrown at you by an aging millennial lamenting the return of low rise jeans. It’s also descriptive of Biglaw’s stance on lateral partner compensation. Law.com has an article explaining that multiyear guarantees — whether in guaranteed points, shares, or specific amounts — are back again for partners they’re hoping to lure to the firm.

There was a time not terribly long ago that partner guarantees were frowned upon — and for a very real reason. Dewey LeBoeuf was overextended on lavish lateral partner guarantees, and that fact played a key role in its collapse. It’s hard to overstate how shocking it was to the legal industry when a 100+-year-old law firm filed for bankruptcy. But apparently those scars heal after 12 years, because now they’re back.

While many Am Law 100 firms have offered guarantees, certain firms are more widely spoken of for using multi-year deals, including Kirkland & Ellis and Paul Hastings, both of which often lure candidates from top rivals.

According to a person familiar with Paul Hastings’ lateral approach, the firm generally does not give guarantees for longer than two years. The person added that many of the firm’s laterals, successful upon joining, are receiving discretionary bonuses that may exceed their guarantees. “The commitment [guarantee] is viewed as a floor, not a ceiling, if a lateral performs,” the person said.

Given the reality of the current lateral partner market, partner guarantees are pretty much a necessity for a firm that wants to attract the most lucrative legal talent. That means even firms that have been burned by guarantees have to get back on board.

“In my experience, they go in and out of favor depending on the market,” said Alisa Levin, founder and partner at legal recruiting firm Greene-Levin-Snyder. “When it’s a seller’s market, you get more guarantees.”

Levin said that firms that are more active in the lateral market are often more likely to use guarantees.

Even firms that had sworn off guarantees are back to using them, some said. “We routinely run into firms that utilize guaranteed compensation arrangements and then suddenly have a bad experience, so they ban them completely. Only to later on go back to them because they can be fundamental to a firm’s ability to attract recruits,” said Blane Prescott, a MesaFive managing shareholder and consultant to firms on compensation.

But these contracts come with risks. Beside the purely financial bet the firm is making on the new lateral partner, they can also be divisive amongst the existing partnership. Professor Tom Sharbaugh, at Penn State Law, said, “Very few ‘rank and file’ partners have multi-year deals, so there is resentment even if a particular lateral partner is not paid an exorbitant amount.” So lateral partner guarantees might be necessary but firms should use them judiciously for maximum impact.

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Kathryn Rubino HeadshotKathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @[email protected].

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