To succeed at retaining and attracting partners, it’s not enough to have high firm-average profit per equity partner (PEP). In addition, a firm’s comp system must have wide enough a range, and be variegated enough, to match individual partners’ comp with the economic contribution of their practices. Failure to do so undercompensates stronger performers and allows them to be lured away by competitors. Even firms with lower PEP but more variegated systems will be able to offer higher compensation.
While the departures don’t happen overnight in a mass exodus, the dynamic is real. Witness the toppling of London’s Magic Circle. They had lockstep comp, with top-to-bottom ranges of three-or four-to-one. The attendant under-compensation of the highest performers created an opportunity that U.S. firms, with their typically broader compensation ranges, exploited to hire away top talent. The London elite (except for Slaughter and May) worsened their predicament by expanding into continental Europe and Asia; these lower-profit markets put a drag on firmwide PEP. While the Londoners introduced country-specific lockstep ladders, and uncapped the top end in varying forms, it’s proven too little, too late. The Magic Circle firms ranked in the top 10 globally by PEP in the 1990s; today, they are clumped around 40th.
