Big Law seizes on promotions that bring big tax bill, no profits

The meteoric growth in law firm nonequity partners often comes with a side effect attorneys dislike : thousands of dollars in health and tax costs without the large profit payouts full partners get.

Several Big Law firms treat nonequity lawyers as full partners for tax purposes. That means they saddle them with Medicare, Social Security and health levies the lawyers didn’t face as associates.

With the added costs, financial planner Eric Scruggs said his nonequity lawyer clients’ take-home pay is only marginally better than associate wages. “The increase in total compensation from the bump in salary and bonus potential is washed out,” he said.

Some nonequity partners get extra compensation in recognition of the costs, while others persuade firms to change their tax classification because of the expenses. Still others get used to the change, enjoying the status of being called “partner” and realizing there are other tax deductions they can take.

Sheppard Mullin Richter & Hampton LLP has a “partnership college” to help lawyers adjust to the new tax status. “We make sure we mitigate any risks,” said Luca Salvi , chair of the firm’s executive committee. “It’s an adjustment because it’s another way of life. It was a shocker for me too when I became partner.”

Massive Pay Driving Bad Behavior in Big Law

Roy Strom looks at the bad behavior surging compensation packages might produce in his latest Big Law Business column . Sign up to receive this column in your Inbox on Thursday mornings.

Big Law sees its move to supercharge pay for the highest-performing partners as necessary to retain important lawyers.

But as the largest benefits are bestowed upon a precious few, firms should consider the incentives they are creating for partners to seek top pay. It’s only natural that plenty of partners will do all they can to be seen as a “star” or to retain their place at the top.

So, firms should be on the lookout for bad behavior that they have long loathed: Client hoarding, seeking credit for work, and other acts driven by simple jealousy.

Big Law partners see the rules of the game have shifted, and they’ll do what it takes to win. The most obvious way to win is to bring in the most revenue. In firm lingo, partners want to generate the most “origination credits.”

To be clear, there’s nothing wrong with winning work. But there’s a term for when partners look to hoard credit for work and keep others at bay. It’s called “sharp elbows.” Almost every managing partner I’ve spoken with insists their firm has done all it can to soften those elbows over the years.

Read more here .

McDermott Matches Davis Polk's Salary Bump for London Trainees

McDermott Will & Emery is the latest Big Law firm to up its trainee salaries in London as US firms continue to spread the cash around to their young talent in the UK.

McDermott has upped its trainee salaries in London to ￡65,000 ($91,500) in year one and ￡70,000 in year two up from ￡53,000 and ￡58,300, respectively, according to a firm spokesperson.

“We pride ourselves on being a leading career accelerant for our people globally,” said Aymen Mahmoud , managing partner of McDermott’s London office. “To do that, we want to combine market-leading compensation with culture and the opportunity to truly excel.”

The firm’s move mirrors Davis Polk & Wardwell’s announcement last month that it would increase trainee salaries, making it the new top rate for trainees among Big Law firms in London.

“The London legal market is only getting more competitive, and the elite firms are not only looking at how they can attract the best talent at NQ level, by extending their focus towards attracting the best students across the country,” said Dylan Morrison , senior consultant at UK legal recruiter Montresor Legal.

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