As long as it has been around, the Am Law 200 list has been seen as what separates the best from the rest. It seems simple, transparent, and concise with each firm ranked in ascending order. However, many misconstrue Am Law ranks to mean overall value and assume that the firms at the top of the list are indubitably the best.
Some partners with books of business larger than War & Peace assume that the biggest firm will be the one with the best platform and financial flexibility to absorb their practice. In reality, many firms towards the middle of the Am Law 200 can better accommodate these lawyers (although many just as likely cannot).
When looking at the compensation average for partners, the gross profits of a firm are a relatively poor predictor compared to the other available metrics. Among the best indicators of firm health and the compensation is the profitability index…
The profitability index is derived by dividing PPP by RPL. When you break up PPP and RPL you can boil the equation down to this:
Essentially the formula rewards those with a lower cost to gross ratio (makes sense) and a higher leverage. This second part may seem counterintuitive; you would think that having a greater number or ratio of partners would be a good thing. However, a low leverage ratio can suggest that partners have smaller books and therefore need less work serviced but more importantly (and likely) associates are very cost effective. The formula assumes that an increase in leverage is indicative of an increase in book size and firm efficiency. This is however, not always true as book size also depends on bill rate.
Selecting the best platform for your practice is not as simple as matching bill rates, it also requires you to consider the power structure, leverage, (in)equality, and the compensation formula for a prospective firm. Varying sizes of “books of business” will fit better at different firms, even if the bill rates are the same.
It is important to note that the ideal firm for a partner varies significantly by practice area, but in terms of raw financials, if you are a partner with around $2 million in business, you would most benefit from a firm with a smaller spread between the highest paid partners and lowest paid partners. These will tend to have friendlier compensation models for partners with books of business around the $2 million mark. A few of the many firms ideal for these partners are Jeffer Mangels, Goodwin Proctor, Manatt, Dykema and Buchalter — note Buchalter’s stats are from 2012, when they last appeared on the Am Law 200. Compensation spread is not a perfect measure. It measures the ratio of the maximum and minimum instead of average values; a better measure would have been the standard deviation of partner compensation, or if one had time, the Gini coefficient.
If your practice is between $2-5 million, the number of firms that can absorb your practice and compensate you for your productivity is a bit more restricted. For example, for a partner to have a practice in the $5 million range, they would need to generate around 9,000 hours of work at a blended rate of $550 / hour for the partners and associates working on their matters or deals. A few of the top paying firms in this category include Hughes Hubbard, Proskauer, Paul Hastings, King & Spalding, and Cadwalader. As you can see, each firm has a healthy leverage ratio indicating an abundance of associates.
If your practice generates between $5–10 million in originations, the number of associates and partners required to service your practice is creeping towards six (or possibly even higher). When looking at firms, beware of using leverage or profitability index as a definitive guide to how well a firm could service your book. The service structure of different practices can vary significantly, with some matters requiring more associates or more partners. In this case, the leverage might make it seem like the firm is a bad match when in reality it is a good fit. Several of these firms are great options, including Gibson, Irell, Skadden, and Milbank.
For those few and far between who generate or at least are the client contact bringing in $10 million or more, there are few firms that could compensate you at top of the market. In my experience, Kirkland, Proskauer, and Simpson Thacher are exemplary firms that provide a strong base and healthy compensation for a large practice. As for Watchell and Quinn, it is tough to call anyone’s business portable, but as long as you are a key stakeholder, your compensation is top of market.
If you made it this far you have glanced at only a microcosm of the complexity of partner moves. From bill rates to firm structure to client conflicts, maximizing your compensation, happiness, and platform are difficult to do in an opaque legal market. Partner moves are far more cumbersome than associate moves which is why partners must do their due diligence before pulling the trigger. My colleagues and I at Lateral Link would be happy to discuss the current market with any curious partners.