Cleary Gottlieb Steen & Hamilton LLP has made headlines with its readiness to offer up to $20 million for lateral partner hires as the intensely fought lateral-hiring frenzy continues unabated among big law firms.
The development not only underscores the firm’s commitment to competing at the highest levels of the legal market but it underscores the intensity of the battle for top legal talent that we have consistently reported about lately.
Offering up to $20 million for lateral hires represents a substantial increase in compensation expenses for Clearys and is significantly higher than the firm’s average partner compensation. That fact alone can create issues – along with new pay tier structures for the big paying firms.
The ability to offer competitive compensation packages allows Cleary to attract top-tier legal talent, enhancing the firm’s capabilities and market position.
Cleary’s profit per equity partner (PEP) was approximately $4.7 million in 2021. Maintaining or improving this figure will be challenging with the added financial burden of higher partner compensation.
Securing high-profile lateral hires can bolster Cleary’s expertise in key practice areas, potentially leading to increased revenue and market share. This aligns with the firm’s goal to significantly boost its revenue and climb higher in the rankings of top law firms by gross revenue.
Historically, Cleary followed a lockstep compensation system, where partners were paid based on seniority rather than individual performance. Moving away from this model to offer competitive packages may affect the firm’s culture and internal dynamics.
Despite the high compensation offers, Cleary emphasizes maintaining its firm culture and being selective about lateral hires. This balance is crucial to ensure that new hires integrate well and contribute positively to the firm’s environment.
The firm wants to retain its reputation for quality work and firm culture, like any firm, but the stresses of dealing with massive pay structures can only lead to the same pressures other firms must feel with the pay rate hikes that push partner earnings into the stratosphere.
The BigLaw Gold Standard
The move to offer $20 million aligns with broader industry trends where top law firms are increasingly willing to pay premium rates – the so-called BigLaw ‘gold standard’ pay rate – to attract star partners.
This trend is driven by the high demand for legal services and the substantial books of business that top partners bring.
And to offer the $20 million dollar package brings Cleary into line with the other biglaw big payers: firms like Lathams,Simpson Thacher, Paul Weiss and Kirklands.
The lateral pay deals continue to accelerate. Last year three Kirkland & Ellis partners joined Paul Weiss on deals that could see each earning the magic $20 million pay, with a resulting change in pay structure with nonequity partner tier being created, similar to that proposed by firms like Cravath Swaine & Moore.
By matching the compensation levels of other elite firms, Cleary positions itself as a competitive player in the biglaw league in the lateral hiring market, ensuring it does not lose out on top talent to rivals.
Cleary’s leadership aims to significantly boost the firm’s revenue without drastically increasing headcount or altering its single-tier partner pay system, an ambitious goal outlines by the firm’s leader Michael Geratenzan to push the firm into the world’s top 20. This ambitious goal requires strategic lateral hires who can drive substantial business growth.
The firm is navigating a highly competitive and “frothy” lateral market, where eye-popping compensation packages are becoming more common. Cleary’s strategy, as shown in its London law lateral hires and pay structure, involves adapting to these market conditions while maintaining its core values.
The major pay deals in London with transfers like law star Neel Sachdev to Paul Weiss from Kirklands show the intensity of the movement towards biglaw pay day deals.
But the desire to enter the highest echelons of the legal market also requires that it joins the lateral pay fray, hitting the $20 million pay packet levels that see star lawyers taking home investment banker-style pay.
What can we expect next? Undoubtedly the $25 million, $30 million pay deals.
