I don't understand why people think it is a problem for equity partners to make so much. Last time I checked they are the reason why large law firms get business and make money. I haven't heard of too many first year associates bringing in tons of business for the firm.
Wow, a true capitalist there.
At a place like Cravath, however, it works differently. As I understand it, Cravath has lockstep equity partner compensation which means by and large all the partners make the same. So the guy bringing in all the business is making just as much as the service provider partner doing all of the billables. Look, if you're a new partner, that system is great...but if you have an established book of business, that model sucks. Lockstep works for Cravath because they bring in revenues that allow them to pay every partner more than any other firm except for Wachtell. Firms that have lockstep partner compensation that don't bring in Cravath revenues risk losing their best assets to firms which have a more merit based scheme of partner compensation.
The flip side is that a firms greatest asset other than the equity partners are its senior associates and service provider partners. They are great because they have the training and expertise to handle the matters the firm brings in at a high level. If your equity partner compensation based on rainmaking too far exceeds that of the workers, then you risk alienating them and having a less productive firm overall. And unlike replacing 1st and 2nd year associates, replacing the productivity of senior associates and non rainmaking partners becomes prohibitively expensive.
Another thing I'll say about Cravath is that because of their lockstep partnership compensation, it makes it very difficult for Cravath to absorb new partners and still remain competitive. So they bring in like 100 new associates every year and only 1 or 2 will become partner after 8-10 years. Pretty dismal chances in my opinion. So the Cravath model is pretty fascinating in my opinion. On the one hand, they have to motivate associates to work hard and produce, but they can't exactly promise that a reasonably fixed number of them will be rewarded with partnership for doing the best work under the tournament theory. On the other hand, they are still able to attract really smart people to slave for them for compensation that simply mirrors other firms (while these other firms provide equal benefits and better partnership prospects). The only thing I can think of is that 1) Cravath gives former associates significantly better exit opportunities; 2) the training at Cravath is better than at other firms; 3) Most of the new associates going to cravath don't want to be partners anyways; 4) New graduates from the most prestigious schools are naturally attracted to the most prestigious firms.
Explanation 1 seems far fetched, especially as related to other firms in the Vault 15 or so. A senior associate from any of the Vault 15 or so is going to be able to have his picking of lucrative opportunities when they are about to leave. At the margins, a junior associate from Cravath may be able to lateral in to a different firm or GC's office easier than at other Vault 15 firms. Explanation 2 seems equally implausible. I would go so far as to suggest that an average Cravath person (who leaves after 3 years) has less training than at most peer firms. The reason is that associates at Cravath have to work for just one partner for 18 months before rotating to another partner. So you're probably going to be really good at one or two aspects of the law, but it doesn't seem to be sufficiently broad as to indicate great training. Maybe there's an internal debate among candidates with Cravath offers about the benefits of specialization v. being a generalist. Of course, the uncertainty of who the partner you get stuck with, makes the Cravath model much less appealing to me (I wouldn't want to get stuck in Securites for 18 months). The third and fourth explanations are my best guess, but they seem irrational given the unlikely truth of explanation one.
So the Cravath model is extremely interesting to me given that they've been able to sustain themselves as such a world-class firm for so long.
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