Cravath creates non-equity partner tier as it seeks to retain legal talent

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Cravath, Swaine & Moore, the elite US law firm that has customarily set the pay standard for its peers, has established a non-equity partner tier, in a departure from its traditional structure designed to reward star lawyers targeted by rivals.

In a company-wide note sent on Tuesday, a copy of which was seen by the Financial Times, presiding partner Faiza Saeed said the firm had “recently established the salary partner role” to help it “retain and promote extraordinary people at all levels”.

The move allows the 204-year-old firm to remunerate more junior staff as they come up. By contrast, its roughly 100 equity partners buy a stake in the firm when promoted after at least seven years of work and share in its overall profits.

Rivals such as Kirkland & Ellis and Latham & Watkins — both of whom have poached talent from Cravath in recent years — already employ a non-equity system, alongside a more traditional equity partner tier, as do other Wall Street competitors.

In her email to staff, Saeed said Cravath was “evolving with our marketplace . . . with the objective of rewarding those who share our values and objectives”. 

She added: “This adaptability is the reason the firm is in its third century as an institution — a rare feat in any realm and, in particular, in the business world.”

Cravath declined to comment. The move was first reported by Bloomberg Law.

The prestigious firm, whose pay scale had been used as a benchmark for the industry’s big players, has gone through a series of changes over the past few years, as profitability at younger, more commercially-minded competitors soared.

In 2021, Cravath overhauled its pay structure by abandoning its pure “lockstep” model, which since 1976 had rewarded partners based on their seniority, rather than their performance. The modified system, while still largely following the “lockstep” model, allowed the firm to remunerate “franchise builders” based on merit, Saeed said in her note.

The decision to shift further away from the pure lockstep model — which in the past Cravath hailed for promoting collegiality — highlights how it has been under pressure to change to avoid losing talented lawyers lured by bigger pay checks at rival firms.

In 2016 Cravath’s star mergers and acquisitions lawyer Scott Barshay left for Paul, Weiss, Rifkind, Wharton & Garrison. It has since continued to lose younger talent, including Eric Schiele and Jonathan Davies to Kirkland & Ellis; Andrew Elken to Latham & Watkins; and Damien Zoubek to Freshfields.

Firms like Kirkland & Ellis have been able to hire the most in-demand partners promising high rewards based on performance, through a remuneration model known as “eat what you kill”.

Cravath, traditionally a New-York based firm, also recently expanded into Washington, and hired its first English law practitioners, Korey Fevzi and Philip Stopford, in London.

It is moving from its Midtown Manhattan location to Hudson Yards next spring, which Saeed said would “offer more social spaces and less separation among all of us” instead of “the traditional partner suites and mahogany wood we are accustomed to now”.