Partner Compensation Formula of an AmLaw 50 Law Firm Revealed in Court
Summary: Partner compensation formulas in large law firms are complex, contentious and rarely revealed to the public. However, in the course of a recent pay discrimination lawsuit, reviewed de novo by the U.S. Court of Appeals for the Sixth Circuit on August 25, 2014, a watertight partner compensation formula of an AmLaw 50 law firm, Foley & Lardner, came to fore.
On behalf of Foley & Lardner, Stanley Jaspan, Managing Partner, made a deposition to the U.S. District Court for the Eastern District of Michigan explaining the partner compensation formula of the law firm and refuting the claims of pay discrimination brought by the plaintiff. The matter is Carey v. Foley & Lardner LLP, U.S. Court of Appeals for the Sixth Circuit, No. 13-2331.
The Sixth Circuit went through Jaspan's deposition and summarized the essential points of the law firm's partner compensation formula in order to review the summary judgment of the lower court.
The opinion shows that Foley & Lardner does not use a mathematical "formula" or "numeric weighting" to calculate compensation. Instead, the Management and Compensation Committees consider both "quantitative data regarding each partner's personal production, billings, collections, work in process and receivables" and a range of qualitative metrics in a holistic manner to make compensation decisions.
The Sixth Circuit's opinion observes the qualitative factors of Foley's partner compensation metrics to include:
- the skill level of the partner (e.g., does he/she first-chair bet-the-company cases or lead major transactions, or is the partner's contribution primarily in support roles or smaller matters) and his/her effort to build a practice with a national reputation,
- the partner's actions truly indicative of ownership in the firm (i.e., acting beyond his/her self-interest for the benefit of the firm . . .),
- the quality of the partner's investment time,
- unacceptable or outstanding practices relating to the partner's overall time commitment to the firm,
- the partner's contribution to client share initiatives, teamwork and enterprise creation,
- unacceptable or outstanding conduct pertaining to interaction with associates, and specific performance as a formal or informal mentor,
- situations of work hoarding by partners to the detriment of associates and/or younger partners,
- the partner's actions to promote diversity in the firm, [and]
- the partner's pro bono contribution.
Jaspan also submitted that Foley looks longer term "than a single year's contribution," and places "limitations on the downside [and] on the up side as to what [it] would do with [compensation] in a particular year." By taking the "long-term" view that promotes gradual rises and falls in compensation, Foley ensures that a partner "whose practice falls off" in a given year will not experience a drastic drop in salary.
Each year Foley emails all partners with instructions to submit a compensation memorandum describing their contributions to the firm in specified categories, such as teamwork and contribution to business expansion, business practices, business planning, supervision and mentoring, diversity, and other investment time activities.
Similar to a simple credit system, the Management Committee assigns each partner a number of compensation "units" based upon recommendations by the Compensation Committee. The Compensation Committee considers the memorandum each partner prepares describing his/her own "contributions to the Firm during the current fiscal year" and considers comments submitted by the "office managing partner and department chair, [and] comments sent by Industry Team department chair."
While the plaintiff partner lost the matter due to his core inability to identify a class of partners, or another partner, doing "equal work," and thus failing prima facie in establishing a proper cause of action, the compensation practices of Foley & Lardner revealed before the court make for serious reading, both for law firm partners and for other law firms. More so, because the compensation formula left almost no visible loopholes through which someone aggrieved might land a successful strike.
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