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Few topics spark as much debate in the legal industry as partner compensation. How firms compensate their partners influences not only individual incentives but also firm culture, collaboration, and ultimately, profitability.
In this episode of Financially Legal, Emery Wager sits down with Hugh Simons, former BCG consultant, law firm CEO, and prolific writer on law firm economics, to unpack the mechanics, challenges, and future of partner pay.
The Big Three Compensation Models
Historically, law firms followed the traditional lockstep model: partners marched up a pay ramp over 7–10 years, with everyone at the top earning the same. While this created stability, it didn’t reflect the economic differences across practices like M&A, litigation, or estate planning. Today, fewer than 10% of firms use pure lockstep.
Most firms now rely on modified lockstep or points-based systems, which maintain a seniority component but leave room to reward star performers. At the other end of the spectrum are eat-what-you-kill models, which tie pay directly to individual billings and collections. These create strong incentives but often at the cost of collaboration and cohesion.
Transparency vs. Opacity in Pay
One of the most surprising insights from industry data is that closed pay systems are less profitable. Firms with confidential compensation see ~14–15% lower profitability than their open-pay peers, even with similar billable hours.
Why? Transparency appears to push partners to develop business and invest in the firm. Yet open systems aren’t without issues. Cronyism is harder to hide, and closed systems can make it easier to quietly overpay laterals.
Problems & Remedies
The biggest structural problem in compensation systems? Subjectivity. Categories like “collegiality” can mask favoritism.
Hugh suggests a multi-pool system, common in consulting but rare in law, which balances three elements:
- Ownership/Tenure (long-term commitment)
- Economic Contribution (revenue, margin, leverage)
- Firm Citizenship (mentoring, collaboration, admin work)
This approach reduces bias and ties compensation more closely to what actually drives firm performance.
Partner Development as a Growth Lever
Many firms treat partnership as the finish line. Hugh argues it should be seen as a career arc:
- Early partners grow as relationship managers.
- Mid-career partners focus on business generation.
- Coaching and emotional intelligence development help elevate “B+” partners into “A” contributors.
Firms that invest here see higher long-term performance.
Trends in Pay Spreads
Once, UK firms capped partner spreads at 3:1. US firms widened those ratios, sometimes up to 9:1, allowing them to lure away top UK talent. Wider spreads create flexibility but can also drive attrition if strong contributors feel underpaid.
Regional dynamics matter too. For example, Chicago partners generating New York–level work may still be paid less, with the margin used to fund expensive NY laterals.
Beyond the Paycheck
Compensation matters, but so do intrinsic motivators like autonomy, mastery, and purpose (a framework popularized by Daniel Pink). For many lawyers, craft mastery is deeply satisfying. But extrinsic motivators like compensation and prestige still shape competition and lateral moves. Successful compensation design balances both.
Where Compensation Is Headed
Hugh believes compensation systems should never be static. They must evolve with firm strategy, market conditions, and partner expectations. Data analytics, from regression on compensation drivers to scatter plots of billing rates vs. compensation, offer underused tools for firms to refine their systems.
His experiments of choice? A multi-pool model and structured partner coaching. Together, they could reshape how firms grow and reward their partners.
Going Further
If you’re interested in learning more about the business of law, visit confidolegal.com or connect with us on LinkedIn.
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