Posted Apr 10, 2013 02:59 pm CDT
Many law firms in recent years have boosted the salaries of their star lawyers, creating larger gaps between the highest and lowest paid partners. Shearman & Sterling, however, is apparently taking a different tack, according to a published report.
Reuters reports that Shearman is “bucking the industry trend” by reducing equity and pay for high earners and increasing them for lower-ranking business generators. The information on the compressed pay ratio is based on four unnamed sources with direct knowledge of the matter. At the same time, the firm is making changes to its bonus pool to emphasize rewards for performance, adopting a merit-based system more in line with industry standards, the story says.
The law firm reportedly began to phase in the changes in 2011, the same year a partnership meeting revealed resentments about compensation and the firm’s direction, according to two former partners who spoke with Reuters. “About that time,” the story says, “firm management began to rethink the top-heavy compensation model and embrace the idea of rewarding business generation and recognizing star junior partners, said the former partners.”
Before the changes, about half the bonus pool was used to reward merit and half was rewarded at the discretion of the compensation committee, according to one source who spoke with Reuters. Now the bonus pool is almost exclusively used to reward individual or practice-area performance, teamwork and business generation, the source said. The bonus pool changes can also be used to help boost the pay of partners whose compensation was cut.
Shearman “has had a particularly tough time” during the economic downturn, the story says. Between 2008 and 2012, it saw a 16 percent drop in profits and a 9 percent drop in profits per partner, according to financial information from the American Lawyer. A Shearman spokesman told Reuters that the firm advised on several large transactions in December and January, and its revenue increased slightly over the past two years.