3 Compensation Systems

 

As soon as a law firm has two or more partners, they will have to decide on how to share the costs and split-up the profits. There are various methods for this and the most commonly used are: Eat What You Kill, Lockstep, Modified Lockstep and Black Box. In this chapter we are going to have a closer look at each of these, starting with Eat What You Kill (EWYK) which has the lowest level of integration and is the least institutional of these four. There are no hard rules for partner compensation and basically every firm has its own system, which is often further adjusted over time.

 

Eat What You Kill

Picture two lawyers starting a law firm. They will need an office, office furniture, stationery and an IT system as a bare minimum. Most likely they will decide to share these costs. This could be 50/50, but they could also decide to share the costs based on actual usage. If one of the two would like a larger office, they would be charged more. Partner Compensation tends to focus on the income side, but it is generally advisable to start with the costs. The example with just two partners is relatively uncomplicated. Add more partners and a number of associates, assistants and support staff, and things rapidly become more complex.

EWYK means that every partner gets to keep whatever they bring in. After contribution to the costs that is. When calculating each partner’s share of the costs, the firm first needs to agree on the level of personalisation of costs. On the simplest level one could decide to just take the sum of all the costs and divide it by the number of partners. Each partner would bear exactly the same amount of costs. Often this does not work so great with EWYK as collectivism (costs) and individualism (revenue) are on the opposite ends of the spectrum. This means that a percentage of the costs will be personalised and some will be socialised. Again, each firm has its own way of doing this, there are no hard rules and or even best practices.

There are basically two methods for socialising costs. One could either adhere to the principle of equal sharing, or differentiate for example by making it dependent on the revenue a partner generates, whereby costs are calculated as a percentage of revenue. The strongest shoulders would carry the heaviest load. The costs that are socialised are typically those that are connected to the basic infrastructure of the firm. Functionality that every partner would benefit from even if that partner would make limited use. Things like the receptionist, printers and the IT network, stationery and firm accounting or marketing spring to mind.

In an EWYK environment the focus is not on the revenue created but on the costs deducted. For the legal industry as a whole, the average costs are at about 60% of revenue. Firms that are the most efficient would be closer to 40% and at a handful of firms the costs can reach 80% of total revenue. These figures illustrate the importance of costs for determining a partner’s profit share. On a side note, partners that have retired and continue to work within the firm as an off-counsel typically have an EWYK arrangement, meaning that they can work as they like (no targets) and do not get a salary or have equity, but are allowed to keep a percentage of all the revenue they self-generate. This type of arrangement is also common for firms that have a lockstep for the equity partners. Theoretically a retired partner who becomes off-counsel could be financially better off, especially if they would not transfer their practice to a successor.

On the face of it, EWYK has the beauty of simplicity and fairness. Those who work hard and have a successful practice get rewarded more. Looking closer, disadvantages and elements of unfairness start becoming visible. Selfish thinking and prioritising self-interest over firm interest can be a serious disadvantage as the following real life situation illustrates: At an EWYK firm one of the Corporate/M&A partners is extremely successful in the market and she and her team have reached the point where they cannot take on more mandates. Everyone is working at 150%. Yet a request arrives to work on a high-profile merger between two listed entities. She asked her fellow partners in the M&A practice group if some of their associates would be available to help out so she could take on this new merger as well. Obviously these partners would be compensated as per the firm’s formula for the use of these associates. The other partners are less busy and timewise it would not be a problem to lend-out some associates. Perhaps surprisingly the partners refuse to help-out. The reason behind this is that lending out associates will not make them a lot of money and at the same time in the event that they would all of a sudden get a large mandate, their associates would be occupied elsewhere. Our partner did not get the help she needed and had no choice but to say no to the client. This client will probably not return to this firm the next time. Putting self-interest first, is often harming firm-interests.

I also mentioned elements of unfairness. Distribution of costs could be one, but more importantly there is the question of who owns the file. This looks a lot like ‘origination credits’ which we discuss elsewhere in this book, but here with EWYK there is an even more immediate relation with partner compensation. What about a partner who directly gets the mandate from the client, but in the end doesn’t do the majority of the work because an issue that involves another areas of expertise arises? The way in which an EWYK law firm operates in the end looks a lot like a capitalist free market economy. Everything is available for money and the strongest and most successful dominate. There is an inherent tension between the right of the strongest and fairness.

Within an EWYK firm partners from one practice group will also have to compete with each other. It is not unthinkable that more partners will pitch for the same client, each offering different pricing arrangements. Once your income entirely depends on your work, you cannot afford to behave too altruistic vis-à-vis your fellow partners. This extends into signing up for tasks that are in the firm’s interest such as taking on a leadership role or participating in a committee or taskforce. Time spent for the firm does not generate income. Except for managing partners who get partly compensated out of the overhead costs.

When it comes to long-term investments, the EWYK system is not ideal. Why contribute to an investment in a costly AI project, if I will probably never use it for my practice? Why contribute to moving to a new shiny office building, which is more representative but which I will only enjoy for a couple of years before I retire as a partner? I could easily come up with more examples. Investments can be an issue in any law firm regardless of its compensation system, but it is definitely more an issue when compensation and costs are directly tied one-on-one.

After reading all this it might seem that EWYK is not such a great system for compensating partners, but to that I would not agree. EWYK allows great freedoms for partners and it also allows for a wide spectrum of partners to work under the umbrella of one firm. EWYK allows for different speeds and ambitions. It also allows to accommodate partners who work within different markets that have different hourly rates. It is perfectly suited for firms that service a wide spectrum of clients. EWYK systems offer lots of freedom and opportunities to attract lateral hires as there will be no issues to fit a new partner into the compensation. Of all compensation systems EWYK allows for the greatest pluralism. I know of a number of firms that are perfectly happy together on an EWYK basis. Even the partner that I mentioned earlier that missed out on a high-profile M&A transaction, remains – after she had overcome the initial frustration – perfectly happy within her firm as she values her freedom more than this single transaction.

EWYK firms probably need to put a bit more effort in their culture to create a feeling of cohesion and belonging. For EWYK partners it is nice to be among likeminded individuals who operate alongside each other as private entrepreneurs. Special attention in an EWYK firm must be given to the associates because on that level a sense of belonging is even more important. You don’t want your associates to feel isolated within their team or feel that they are internally competing with other teams. However, experience shows that all these issues are manageable and there are EWYK law firms that have a great culture and do really well. The only real disadvantage of EWYK is that even though some individual partners can make a lot of money, all partners taken together will inevitably be outperformed by comparable firms that have a more institutional and collaborative compensation model. What works well for some individuals, does not work well for the firm as a whole.

The Latin American legal market tells a harder story about EWYK. Over the past fifteen years, the top tier in the region has largely moved away from it, and not out of ideological preference. The problems were practical and visible. Partners hoarded clients, which made it difficult to develop genuine specialisation. Clients ended up receiving worse service, handed between partners based on who owned the relationship rather than who was best placed to handle the matter. Accountability was absent: when a partner underperformed or damaged the firm’s reputation, the EWYK structure gave colleagues no real mechanism to intervene. The best partners found themselves indirectly subsidising the weak ones, carrying the brand damage without being able to do anything about it. There are no good stories about EWYK firms at the top of the Latin American market. The few that still operate this way have paid a visible price, often in the form of firms dominated by large individual egos that have prevented any serious institutional development. Most have simply concluded that the model does not work for what they are trying to build.

 

The NFL as an illustration

Before turning to lockstep in detail, it is worth pausing on an analogy from professional sport that illuminates why collaborative revenue models tend to outperform individualistic ones, not as a blueprint for law firms, but as a way of making the underlying economics vivid.

The US National Football League is one of the most commercially successful sports organisations in the world, and its financial model is structurally at odds with everything that EWYK stands for. In 2024 the NFL's total revenue exceeded USD 23 billion. Of that, roughly 60 to 65%, the income from national broadcasting rights, sponsorships and licensing, was divided into 32 equal shares, one per team. Every franchise received approximately USD 432.6 million from this pool before selling a single ticket in its home market. The Dallas Cowboys, one of the most commercially powerful franchises in American sport, received exactly the same national revenue share as the Cincinnati Bengals, who sit near the bottom of local revenue generation. The Cowboys do not object to this arrangement. They actively support it.

The reason is straightforward: the Cowboys can only be the Cowboys inside a competitive, commercially vibrant NFL. If national revenue were distributed in proportion to a team's success or market size, the wealthiest franchises could outspend everyone else on players indefinitely, competitive outcomes would become predictable, television audiences would fall, and the broadcasting contracts that fund the entire system would be worth a fraction of their current value. The league as an institution is the source of every franchise's wealth. Protecting the institution, including its weaker members, is therefore pure self-interest, not charity.

The NFL enforces this logic through three interlocking mechanisms that are worth understanding in terms of their law firm equivalents.

The first is the national/local revenue split described above. The income that comes from the collective brand: broadcasting, national sponsorship, licensing; is shared equally. The income that a franchise generates through its own commercial activity, stadium naming rights, premium hospitality, local partnerships, stays with that franchise. This is the equivalent of a law firm pooling institutionalised revenue (retainers, panel appointments, firm-wide client relationships) while allowing individual partners to benefit from the practices they have personally built. The collective infrastructure is what makes individual excellence possible; the shared pool is the price of admission.

The second mechanism is the salary cap and salary floor. Every team must spend at least 90% of the cap on player salaries over a rolling four-year period and cannot exceed the cap in any single year. The cap itself is calculated as a percentage of total league revenue, so it rises when the league prospers and contracts when it does not. What this creates is a narrow band within which every team operates. The wealthiest owner and the most modest one are working with approximately the same talent budget. In law firm terms, this maps onto the spread between the highest and lowest paid equity partner, the core question explored throughout this chapter. A wide band, as in a pure EWYK system, rewards individual performance but destroys the conditions under which collective excellence becomes possible.

The third mechanism is gate receipt sharing. Even at the local level, where franchises retain most of their commercial income, 34% of standard ticket sales goes into a common pool that is redistributed equally. The visiting team contributes content to every game; the home team's gate receipts partly reflect that contribution. Compensation for the work done by others, not just the credit taken by whoever owns the client relationship, is built into the model at every level.

The NFL analogy is useful precisely because it involves organisations that are, in many respects, fiercely competitive with one another and run by people whose primary motivation is profit. It is not a story about generosity or collegial values overcoming self-interest. It is a story about self-interest correctly understood. The franchises that compete most aggressively within the system do so within a structure they help design and actively protect, because they understand that the structure is what makes the competition worth having.

The analogy has clear limits. NFL franchises do not have portable client relationships. A partner who originates a major client and then leaves will often take that client with them; an NFL team cannot take its television market to a rival league. The ethics rules that govern legal practice have no equivalent in professional sport. And the NFL is an industry-wide cartel with enforcement powers that no law firm management committee possesses. A managing partner who tried to impose a salary cap on the partnership would not last long.

The lesson is therefore not a prescription but a principle: the conditions that allow a collective to outperform a group of talented individuals operating independently are structural, not cultural. You cannot produce NFL-style collective performance by asking people to be more collaborative. You produce it by designing a compensation system in which the rational self-interested behaviour of each participant happens to align with the interests of the whole. The lockstep, in its various forms, is an attempt to do exactly that within the specific constraints of a professional partnership.

 

Lockstep

Historically all law firms had an EWYK compensation system. Things changed in 1899 when Paul Cravath joined the firm which ultimately became Cravath, Swaine & Moore: the modern law firm was born. Cravath redefined the law firm as an enduring institution that could last beyond its partners, rather than merely a confederation of lawyers. Within a few years, Paul implemented a number of changes to bring his law firm into the 20th century. He started hiring top talent straight out of the prestigious law schools to ensure they had not developed any bad habits. The firm’s associates were paid a salary, rather than sharing in part of the firm’s profits. Unlike the preceding model of law firms where an individual lawyer’s work was theirs alone, Cravath required that all business in the office must be firm business. Most famously Paul Cravath ended competition among partners by instituting the lockstep compensation system in which seniority was the primary basis for compensation. The Cravath System was born. Fundamental to the Cravath System was fostering (or requiring) a culture of cooperation. In many aspects the lockstep compensation model is the polar opposite of EWYK.

The lockstep compensation model is based on seniority rather than on merit. Partners move up a compensation ladder, one step each year. Like a real ladder the lockstep ladder has a beginning and an end, and there are equal spaces between the steps. A newly appointed partner will generally start at the lowest step and move up one step at the time year by year until reaching the top of the ladder. Once the top has been reached the partner will stay at that level. We will call this a plateau partner.

The lockstep was introduced to overcome some of the major disadvantages of EWYK. By taking away the financial incentive for self-interest and individualism, the thinking is that there will be no barriers for partners to cooperate and share clients and matters. Theoretically, partners would operate as a team, putting the interests of the firm above anything else. This would lead to better staffing of matters, more creative exchange, sharing market intelligence, frictionless collaboration on files, and joint market and business development initiatives. Operating like this would clearly be in both the clients’ and the firm’s interest. Some firms that adopted the lockstep model early on, Cravath notably leading the pack, have developed into the leading and most successful firms in their markets and across the world. For decades, lockstep firms have on average outperformed EWYK firms both in income and in reputation by a wide margin. Recently things have started to change, we will get to that later.

Let’s first explain the fundamentals. These are best illustrated using points on a scale to 100. Each point represents an entitlement to a corresponding fraction of the firm’s profit. Assume a law firm where a newly appointed partner starts at 30 points. Perhaps counterintuitively a young partner cannot start at 1 point simply because the profit share at a minimum needs to be slightly higher than the salary this lawyer would have earned including any bonus. It must be financially attractive to become a partner, that is why 30 points in our example is not an unrealistic number. These 30 points would be the lowest step of the ladder. In our example each partner will go up one step of 7 points on the ladder, so in year-2 the partner will have 37 points, year 3 it will be 44, and so on. Following this, it will take 10 years for the partner to reach the top of the ladder which is 100 points (100%). At this point the partner has reached the plateau where they will remain until retirement.

Each point represents an entitlement to a corresponding fraction of the firm’s profit. We will use the table below to explain and illustrate how it works out.

 

 

Our example firm has 11 partners which in 2025 each represent one step in the lockstep (column B). Partner-1 who has just been appointed starts with 30 points and partner-11 has reached the plateau. The firm’s total profit in 2025 is 11 million (C13). To calculate each partners’ share in the profit, we will have to first calculate the total number of points, which in 2025 is 715 (B13). By dividing the profit by the total number of points we can calculate the profit value per point which in this case is 15,384.62. Each partner receives the point value multiplied by the number of points this partner has. The result is shown in column C. As you can see partner-1 who has 30 points will receive 461,538 in compensation and at the other end of the spectrum partner-11 receives 1,538,462, which is about 3.3 times as much. It is typical for a lockstep firm to have a limited ratio between the highest earner and the lowest. In an EWYK firm this ratio would typically be much higher.

Now watch what happens as time progresses. For the firm’s profit we make the assumption that it will grow by 5% annually. This is shown in C13, E13, G13, I13 and K13. The 11 million in 2025 will be 13.4 million by 2030. Because all partners that are not at the plateau, by default receive 7 extra points each year, the total number of points will grow if no partners leave the firm. In 2025 there are 715 profit points, in 2026 there are 785 and by 2030 the total number of points has increased to 953. As the table shows, all partners get a higher compensation every year, except for the 100-points plateau partners who see a steady decline. Partner-1 grows from 461,538 in 2025 to 813,739 by 2030. This is an increase of 76%. In contrast partner-11 sees a decrease of 8% over the same period of time. From 1,538,462 in 2025 to 1,402,998 in 2030. The 5% annual growth in profitability for these partners cannot compensate for the effect of the growing number of points. This means that in a lockstep firm there can be a lot of pressure, especially on young partners, to perform and contribute to help compensate for this effect.

Because of this direct relation between the total number of points and the compensation, Lockstep firms have to actively and strategically manage the total number of points. The moment a 100-point partner retires, the total number of points by which the profit is divided is lowered by 100, which could directly translate into a higher profit for the rest as long as the loss in revenue and contribution to the profit pool does not cancel this effect out. Like the firm in our example, it is a risk for lockstep firms to become top-heavy over time. If it takes 10 years to reach the 100 point plateau and the average age of partner appointment is 34 and partners retire at 65, partners will be at 100 points for about 2 decades.

Over time different techniques for managing the lockstep have been developed. When a new equity partner is appointed, this is because the majority of partners is sufficiently convinced the new partner will contribute meaningfully to the future reputation and profitability of the firm. While expectations are high, there are no guarantees. From time to time, even after vigorous vetting, the new partner turns out to become a disappointment. To reduce the risks concerned with ‘automatic progression’ on the ladder, some firms have introduced “gates’. A new partner will only automatically progress a limited number of steps on the ladder. In order to progress further to the next gate, the partner needs to fulfil certain performance criteria. Until these criteria are being met, the partner will remain stuck at the gate, which could in theory be indefinitely. While the gates are meant as a protection mechanism for the firm to avoid having to pay more than the partner potentially brings in, and an encouragement for the partners to go the extra mile and put in all their efforts to succeed, the gates are also known to provoke behaviour that is harmful to the firm, for instance when the partner doesn’t want to work on matters that are initiated by other partners, or when the partner starts hoarding work that should better be done by associates.

 

UK Magic Circle Lockstep adjusting to new competitive reality

The traditional lockstep model, long the hallmark of the UK's Magic Circle firms, is undergoing a fundamental structural evolution to survive the aggressive lateral market driven by US-based firms. While pure lockstep (where pay is determined solely by tenure) was designed to foster collegiality, it left firms vulnerable to having their "star" partners poached by American firms offering "Hollywood" packages. By 2026, the Magic Circle has largely abandoned pure lockstep in favour of a super-tiered or modified model that introduces merit-based performance within a seniority framework.

Best practice among the UK elite now involves the use of super-points or high-flyer tracks. In a traditional lockstep, a partner might move from 10 to 50 points over 10 years and then plateau at the top. To combat the lateral market, firms like Freshfields and Linklaters have "fattened" the top of the plateau. They allow exceptional performers to move beyond the standard ceiling into a super-tier, where they can earn double or triple the amount of a standard senior partner. This creates a lockstep-plus environment. It maintains the predictability and culture of the junior tiers while providing the financial ammunition to keep rainmakers from defecting to high-paying US competitors.

A significant trend in late 2025 and 2026, exemplified by the A&O Shearman merger, is the formalisation of a three-tier equity structure. Instead of a single ladder, partners are categorised into "Entry," "Core," and "Super" levels.

• Entry Tier:      New partners start with a base level of equity that grows via seniority.

• Core Tier:       The vast majority of the partnership sits here, receiving stable, predictable increases.

• Super Tier:     Reserved for the top 5% to 10% of performers, this tier allows for compensation that rivals the EWYK models of the US. By using these tiers, firms can offer Hollywood salaries to a select few without inflating the base pay of the entire partnership, which would otherwise lead to unsustainable overhead.

As mentioned above, to ensure that modified lockstep doesn't simply become a more expensive version of the old system, firms have introduced gateways. Partners no longer move up the ladder automatically just by aging. Instead, they must pass through performance gates at specific intervals (often years 5 and 10 of the partnership).

If a partner’s business development or billable contribution stalls, they can be held at a specific point level indefinitely or, in increasingly common "negative lockstep" moves, be moved back down the ladder. This creates a meritocratic pressure within the seniority system, forcing plateau partners to remain active in client origination rather than coasting on the efforts of the younger generation.

To further bridge the gap between UK-style parity and US-style rainmaker rewards, best practice now includes a discretionary bonus pool that sits entirely outside the lockstep points. This pool is often funded by taking a top-slice of the firm’s global profits (often 5% to 10%).

The bonus is not formulaic. It is awarded by a Compensation Committee based on firm-building activities, such as successfully integrating a major lateral hire or opening a new international office. This allows a firm to pay a partner a one-time Hollywood-style reward for a landmark year without permanently altering their position on the equity ladder, preserving long-term fiscal discipline.

There is currently a divergence in strategy regarding the nonequity tier. While many US firms are expanding their nonequity ranks to protect the profits of the top-level stars, some Magic Circle firms are moving back toward an "all-equity" model for their senior ranks. The logic is that an all-equity partnership increases the cost of departure for a rainmaker. If a partner has a significant capital stake and a voice in firm governance, they are harder to poach than a highly-paid salaried partner who has no skin in the game. This equity shield serves as a defensive barrier against the volatility of the lateral market.

Some firms use a longer ladder allowing to differentiate between practices and markets. The ladder could start as low as 5 or 10 points, which in certain markets could provide for an income above senior associates, enough for a junior partner to be attractive, and could go as high as 300 (or more) providing competitive compensation for top-performers in the most profitable practices in markets like New York. All partners would grow the same number of steps over their career (for instance 10 steps) with the same increase in points (for instance 7 points), but they would each start and end at different positions on the ladder depending on their geographical location and their practice area.

While all this is understandable if it is needed to keep top-talent onboard, it also highlights one of the core weaknesses of the lockstep: its inflexibility. The lockstep is a rigid system that does not take into account individual performance or market conditions. It might be hard or complicated to fit a lateral hire into the lockstep. It might be equally hard to convince a partner to stay with the firm if offered substantially more elsewhere.

Interestingly, while the thinking behind the lockstep is to create a closer knit and more collaborative culture, in practice some of the same issues arise. If partner compensation is solely based on seniority, the underlying assumption is that each partner contributes in equal measures to the success and profitability of the firm. Lockstep firms have strict performance criteria, which an EWYK firm doesn’t need. In a lockstep firm there can be a lot of pressure on partners to perform and partners that start trailing behind are frowned upon and are under threat as underperformers could be stripped of some of their points (they are put down the ladder a number of steps and cannot climb back up as long as their performance remains weak), or are at risk of being de-equitised (made a salaried partner of an off-counsel or counsel), or even told to leave the firm.

Being a partner in a lockstep firm can come with a lot of pressure to perform. This pressure to meet the targets could even undermine the reason to have a lockstep in the first place, which is barrier-free cooperation between partners, and putting the firm’s interests before the personal interests. When a partner feels under pressure to perform, it can be tempting to open a file under their own name, rather than help out in the file of another partner. When under pressure to meet targets, a partner might want to monopolise the relationship with the client to avoid other partners getting a piece of the cake. Perhaps in reality some lockstep firms are harder on their partners than EWYK where they don’t care so much since each partner looks after their own business.

 

Benchmark Capital: a lockstep outlier in venture capital

Before turning to the modified lockstep, it is worth pausing on a case from outside the legal industry that demonstrates something the critics of pure equal sharing tend to overlook: it can work, and work spectacularly well, even in a fiercely competitive, financially driven environment where the alternative is always available. Benchmark Capital, founded in 1995 in Silicon Valley, is one of the most successful venture capital firms in history. It backed eBay, Uber, Instagram, Snap, Twitter, and Discord, among others, and has done something no other firm in its industry can claim: it produced the highest-returning venture fund of its cycle twice, each time with a completely different set of partners. The firm runs on a pure equal partnership model. Every general partner holds an identical share of the carried interest and an identical ownership stake in the management company. There are no senior partners, no junior partners, no star bonuses and no differential allocations based on whose deal performed best. The management company is simply transferred to each new generation of partners at no cost. In functional terms, this is lockstep. What makes the Benchmark case instructive is not just that the model has survived but that it has been tested. In the firm’s early years, one of the five founding partners turned out not to share the same investment style as the rest of the partnership. He left within two years, handled with discretion and generosity, and the firm moved on. There were periods when investments were slow and nothing was obviously working. The equal structure did not collapse under that pressure. It held because the partners had entered with equal ambition and equal commitment, not just equal economics. When sophisticated investors were first asked to back Benchmark, their primary concern was not the economics but the trust: would these people actually create value together when things got hard? The firm’s answer, demonstrated over three decades and three complete generational transitions, is that equal sharing among genuinely committed, equally ambitious partners does not breed free-riding. It breeds a race to the top, because there is nowhere to hide and no one to subsidise complacency. The obvious question is why this model thrives at Benchmark while pure lockstep has been retreating across the legal industry for decades. The answer lies almost entirely in scale. Benchmark operates with five general partners. With five people, individual contribution is fully visible to everyone. Underperformance is impossible to conceal and is resolved quickly, as the founding period showed. In a partnership of five hundred, the same dynamics that make lockstep elegant in theory become unmanageable in practice: free-riding is harder to detect, performance is harder to attribute, and the political cost of acting on underperformance is prohibitively high. Benchmark is also structurally protected from the lateral market pressure that has forced law firms to abandon equal sharing. A venture capital partner’s most valuable asset is their judgement and their network, neither of which can generate returns outside the fund structure in the way that a lawyer’s client relationships can walk out of the door. The portability problem that makes lockstep fragile in law simply does not exist in the same form in venture capital. Among its peers in the venture capital industry, Benchmark remains a pronounced outlier. The dominant model at large VC firms more closely resembles the direction law firms have been moving: tiered economics, differential carry allocations, platform teams, and in some cases explicit star treatment for the partners who source the most valuable deals. The industry consensus is essentially the same as the consensus in law: equal sharing cannot retain top performers in a competitive talent market and will be arbitraged by those with the most options. Benchmark’s evidence is that this consensus is correct for the average firm and wrong for the exceptional one. The precondition is not generosity or ideology. It is uncompromising selectivity at the point of entry, combined with the institutional honesty to act quickly when the standard is not met. The lockstep does not fail because equal sharing is economically irrational. It fails when the partnership it is applied to is not, in fact, a partnership of equals.

 

The modified lockstep

Perhaps thanks to firms like Cravath in New York and Slaughter and May in London, that have been icons of supreme quality, reputation and profitability, for whom the lockstep has been part of their identity, the lockstep gained a reputation among law firms as the gold standard of compensation. The problem is most firms are not Cravath or Slaughter and May. A lot has changed since Paul Cravath one and a quarter century ago came up with the lockstep compensation model. His idea was an antidote to the ‘dog eat dog’ world at a time when the legal industry was still in a very undeveloped, premature phase, a far cry from today’s sophistication. The lockstep has enabled several generations of very successful partners and has helped build some of today’s most legendary elite law firms. However, times have changed and today more than 125 years later we live in a world which has become a lot more financially driven. Back in the days partnerships were like a family, lifelong commitments. This has changed and generational conflict arises today. Partners who came of age in the day when partnership was an honour-bound commitment expect junior partners to have both gratitude and commitment to the firm, and many do. But many also recognise that we are in a changed environment. Unpleasant as some senior partners may find this, partnerships are now largely transactional. Loyalty is no longer the rule of the game. A book of business determines both income and power.

These days even Cravath itself has moved away from the strict seniority-based partner compensation model, joining other firms in seeking more flexibility for rewarding high performers. Hybrid compensation models, also called ‘modified lockstep’ have become increasingly popular and are today the dominant partner compensation system across the industry. Like the lockstep, the modified lockstep is built around the distribution of profit points. The firm’s total profit is divided by the aggregate number of points in issue, which yields the value of a single point. Each partner is then awarded a number of points. Unlike the pure lockstep, where the only variable is seniority and partners advance automatically up the ladder, the modified lockstep awards points on the basis of performance, experience, and other criteria the firm sets. As a partner gains seniority and demonstrates sustained contribution, the number of points will typically grow, but there is no mechanical progression. The modified lockstep also differs from EWYK: a partner’s income is derived from the firm’s total profit, not from the revenue that partner individually generated. This means that partners retain a collective financial interest in the performance of the firm as a whole. The balance between seniority and performance criteria, and how the compensation committee weighs them in practice, will determine how closely the model resembles its lockstep or its EWYK parent.

In the Latin American top tier, where the modified lockstep has become the dominant model over the past decade, the balance has tilted firmly away from seniority. Most leading firms use seniority as a minor factor at most, placing the weight instead on behavioural criteria: collaboration, mentoring, talent development, contributions to the firm’s reputation, and how a partner conducts client relationships rather than merely what those relationships produce financially. This is not so different from the way McKinsey evaluates the path from junior to senior partner, where the decisive question shifts from whether someone produces excellent work themselves to whether they create an environment in which excellent work happens around them consistently. Seniority tells you how long someone has been at the table. Behaviour tells you whether they are making the firm better.

Hybrid compensation models are trying to pick the best of both worlds. Ideally every law firm would like to have only talented, high performing partners that generate a large book of business, who are putting the firm’s interests first while collaborating frictionless with other partners in the firm. In practice this remains an elusive situation from which reality diverges to a lesser or larger extent. Law firms find themselves constantly tweaking the hybrid formula in order to create financial incentives for the partners that will help them to get closer to this ideal. Realistically the ideal will never be realised by financial incentives alone. Reality is that the relationship between partners and between partners and their firm has become more transactional. How transactional exactly is something that will largely depend on the level of partner mobility in a given jurisdiction. The more easy and common it becomes for partners to move between firms, the more loyalty will be eroded. Then partners will predominantly focus on how well the firm works for them: as a platform and from a financial perspective. Hybrid compensation is an adaption to this reality, but it is not a remedy or a cure. Perhaps the seniority based component of compensation is not the most robust method of ensuring loyalty, and law firms have started to discover that. On top of the compensation law firms are using instruments such as forgivable loans to discourage partners from leaving. With a forgivable loan, a partner receives an amount of bonus compensation which is technically in the form of a loan which only has to be repaid if the partner leaves the firm within a set period of time (explained further in Chapter 9 – Lateral Movement).

Hybrid compensation systems inevitably introduce the challenge to design a compensation system which is based on a mix of components that keeps all partners happy and is seen as fair. EWYK and Lockstep are far more simple and straightforward in this respect. With the hybrid model, the mix of factors that are taken into account can become a hotly debated political topic and it can be a delicate balance with lots of compromises to keep all partners happy. How to value ‘contribution to the firm’ for instance is one of such issues. If a partner takes up a leadership role, or is actively involved in recruitment or implementing AI or Knowledge Management, all these activities take time which cannot be spent on client work. How do we compensate these partners for the potential loss in income as a consequence of a decline of the performance-based component in the compensation mix? These are not easy questions to answer. A partner who takes up the position of managing the firm for let’s say two terms of 3 years, will probably lose a substantial part of their practice. The effects will last until several years after the two terms have ended. Clients could have moved to other partners and the stream of incoming new mandates might well have dried-up for the most part. How to put a value on this? Everyone will agree the firm needs strong and capable management, but if it comes at a high personal expense, will the right candidate accept the position?

With every adjustment made to the compensation system, a potential source of disputes and discontent is introduced. Both EWYK and Lockstep do have clear disadvantages, but at least they are clear and predictable in their simplicity. Hybrid systems are an attempt to cater to all needs and as we all know such attempts come with disadvantages of their own. One being the criteria perceived as unfair towards some of the partners, while favouring others. One of the main roots for discontent is, however, how the precise amount of compensation is established for each individual partner. The only predictable part is the seniority-based component, but the merit-based component is shrouded in clouds because this is rarely a straightforward calculation based on a partner’s revenue. Typically a firm has a compensation committee to decide on each partner’s share. Such committees can easily be accused of being biased towards certain partners or of playing a political game.

It is just because of the discretionary powers of the compensation committee that the hybrid system offers firms the flexibility they are looking for. With a hybrid system it is easier to fit in laterals and it is easier to keep rainmakers onboard. This is also probably the principal reason why white shoe firms like Cravath have moved towards the modified lockstep.

 

Black Box

There is a fourth category of partner compensation that is worth mentioning, which is the black box. Basically there are no fixed hard rules, although there will be guidelines, on how partner compensation is calculated or decided. It is up to the managing partner (or senior partner/chair of the board) to decide. This can again also be a committee. The defining characteristic is an absence of transparency, but that absence takes two distinct forms. The more common variant is one where the criteria are discretionary and non-transparent but the outcomes are not: partners can see what each other earns, even if they cannot self-calculate their own share in advance. The opacity of the criteria alone is sufficient to prevent partners from benchmarking themselves against one another in any meaningful way. The less common variant goes further: both the criteria and the outcomes are invisible. Partners, despite being co-owners of the firm, cannot know what any of their colleagues actually receives. This requires an exceptional degree of trust in whoever makes the compensation decisions. It is, however, this second variant that has been gaining ground among high-profile firms. As of January 2024, Paul Weiss adopted this model. According to ALM/Law.com, the move came as leaders at Paul Weiss sought to reduce tensions among partners as the firm widened the spread of compensation with large investments in recruiting and retaining rainmakers from competitors. In doing so, Paul Weiss joined a handful of Am Law 100 firms that had already adopted such a system, including Ropes & Gray, Fried, Frank, Harris, Shriver & Jacobson and Jones Day. The move signalled a further departure from Paul Weiss’ modified lockstep pay, in which compensation was largely determined by seniority.

Every firm with a non-transparent pay system has a different approach, with some going as far as penalising discussions of compensation and others providing limited information upon request. But the motivation for restricting payment details remains largely the same. Firm leaders employing this black-box style of compensation say it reduces tensions among partners over the fairness of pay while promoting a culture of collaboration. One question is, will it dull the competitive instincts of some partners if their colleagues don't know what they make? Some black boxes are so dark, partners don't know how they're compensated. Generally partners want to know how their salary is calculated, a formula some black box firms don't provide. But if the black box is set up correctly and the partners know how to move their own needle based on billable hours, collections, mentorship of partners and other associates, then most of the time partners are satisfied. Partners get dissatisfied when they have no insight in how to move their own needle.

It is a way at odds with an equity partner being a co-owner of the firm, to withhold information on how compensation is calculated and distributed. One might question whether this is even in accordance with or in the spirit of corporate law. In principle, shareholder/owners are entitled to detailed insight in the financial accounts and remuneration of executives. Black box also requires an enormous amount of trust in the leadership or the committee that makes the compensation decisions. Trust that it is done fair and unbiased. There are no internal benchmarks to check one’s own compensation against. Not all partners are ready or willing to transfer all that trust.

An upside of no-transparency is obviously that there are no more endless conversations about partners that are seen as being underperformers and over-compensated. Especially in lockstep firms this is a recurring topic. But also with hybrid models this is repeatedly an issue. The flipside of this is that young partners also cannot have an ambitious goal, as they do not know how much the top-performers are taking home. This could also make them more open to concrete offers from other firms that do show a clear perspective. Transparency is a bit of a double-edged sword; it can trigger the wrong type of discussions which create a negative atmosphere and are in fact a distractor and waste of time. It could kill ambition and perspective at the same time.

Black box compensation, because of its lack of transparency, allows for a wide breadth of compensation within the equity partner ranks. In 2016, the average ratio between comp of the top and bottom tiers was according to ALM/Law.com nine-to-one. Today it is over 10, a huge difference from the three- or four-to-one ratio in a traditional lockstep, or the four- or five-to-one ratio in a "modified" lockstep. This range is thus a powerful weapon in luring star partners from lockstep firms.

 

Bonus Pools

Law firms are increasingly adopting bonus pools, while those that already had them were increasing the pool and the size of the individual bonuses. Bonus pools had been averaging 5-8% of net income but are being stretched to 10-12% or more. Some firms have bonus pools as large as 25%. The bonus pool is a percentage of the profit that is not distributed to the equity partners in accordance with the compensation model. (Bonuses for salaried partners and associates are part of the cost, which is different.) This bonus pool is used to extra reward partners that have delivered an outstanding performance and for whom following the regular compensation formula would lead to an unfair outcome, not reflecting the extraordinary achievements. Using the words ‘outstanding’ and ‘extraordinary’ indicates that a partner should not receive a bonus year-after-year. Bonuses should also preferably be substantial (say 5% of regular compensation as a minimum). If it is felt that some partners should receive a bonus multiple years in a row, it is generally advisable to change the compensation system instead.

 

What is the bottom-line?

Now we have outlined the merit-based, the seniority-based, and the hybrid compensation system, it is time to reflect on the strategic objectives your compensation system should meet. First of all, compensation should be fair and competitive. Fair meaning that it needs to value a partner’s contribution to the firm. Contribution can take more than one shape or form, meaning that is not only revenue, but all contribution should impact the bottom line of the firm. This could include, utilisation, collection, recruitment and talent development, as well as management roles. Compensation should also incentivise cooperation and collaboration and should discourage selfish behaviour or hoarding of work at the cost of other partners or practice areas. Compensation should allow for flexibility. Flexibility in differences in profitability between practices and markets. In order to build a strong firm, there should be less flexibility to accommodate different levels of partner performance. Compensation should ideally also have the flexibility to attract talented partners from other firms and remain attractive enough to prevent good partners from leaving. In theory, the hybrid model seems to meet these criteria best. We are already seeing a decline in pure lockstep firms, as this model offers least flexibility. EWYK has the disadvantage of not focusing on contribution to the firm, but only on the individual instead. Any interaction or collaboration will be purely transactional. A firm where every interaction between partners is transactional has a ceiling on what it can become. To my knowledge none of the elite law firms currently has an EWYK compensation model. Even if a top-firm has a large merit-based component, this will always be about contribution to the firm.

 

Comparing with other professional services

Law firm partners sometimes look enviously at the compensation systems of the Big Four accounting firms and the MBB strategy consultancies, McKinsey, BCG and Bain, and wonder whether those models hold lessons for legal practice. The comparison is instructive. But the lesson it teaches is not the one that is usually assumed. The differences between these professions are structural, not cultural, and they explain why the practices that work well in consulting or accounting cannot be transplanted into law. Understanding why they cannot be transplanted is more useful than wishing they could.

 

The dominant structural difference is client portability. At BCG or Deloitte, a major engagement is contracted with the firm and built around the firm's proprietary methodologies, data assets and multidisciplinary teams. A departing partner cannot easily take a fifty-million-dollar account to a rival because the client's relationship is with the firm's infrastructure, not with the individual. This is reinforced by non-compete and garden leave provisions, typically twelve to twenty-four months, that law firms cannot impose because ethics rules protect a lawyer's right to practise and a client's right to choose their counsel. The result is that consulting and accounting firms do not face the lateral market dynamics that drive compensation inflation in law. A partner's market value is intrinsically tied to the platform they work on, which gives the firm considerably more leverage in setting pay.

 

Everything else flows from this. Consulting and accounting firms use a multi-dimensional scorecard that weights financial contribution alongside client satisfaction scores, team development metrics and what they call firm citizenship, the investment a partner makes in internal knowledge, mentoring and leadership. A McKinsey or BCG partner who generates strong revenue but burns through junior talent or ignores internal knowledge-sharing will see their compensation penalised. The scorecard works because the clients cannot leave with the partner. The penalty for poor citizenship does not cost the firm its revenue. In law it can. That is not a subtle distinction. It is the entire argument.

 

A second difference is in how the partnership is owned. In most large consulting and accounting firms, the capital buy-in is set at a fixed, relatively modest amount, and a partner's profit share is determined by annual performance and seniority, not by the size of their capital stake. Capital accounts and profit accounts are kept strictly separate. Retirement provisions follow a structured glide path, typically returning capital in equal instalments over three years, so that a wave of departures does not destabilise the firm's balance sheet. The structure is cleaner and creates fewer perverse incentives than the typical law firm arrangement. But it is clean precisely because the partnership does not need to be structured as a deterrent to departure. When clients are portable, the partnership structure has to do some of that work.

 

 

Why law firms cannot simply copy the model

 

The temptation to read the above as a set of reforms that law firms have simply failed to adopt needs to be resisted. The differences are consequences of the structural reality of legal practice, not failures of management imagination.

 

The balanced scorecard is not merely difficult to implement in a law firm. In a market where the thing being measured, the client relationship, is legally portable, it is logically incoherent as a primary compensation driver. A firm that penalises its top originator for insufficient mentoring scores is making a rational choice only if it is confident that the originator's book of business cannot move with them. In consulting that confidence is justified. In law it is not. The leverage any rainmaker holds over their firm is structurally greater than what their equivalent at McKinsey would hold. This is not a hypothetical. It is what the lateral market demonstrates every year. Firms that have tried to impose consulting-style scorecards without reckoning with this reality have discovered it the hard way, when the partner who had scored lowest on non-financial contribution walked out with the clients.

 

None of this is an argument against measuring non-financial contribution. It is an argument against pretending that law firms can assign the same weight to those measurements that consulting firms do, without first solving the portability problem. Solve the portability problem, and the scorecard becomes viable. Leave it unsolved, and the scorecard is an aspiration that the compensation committee will quietly abandon the first time it needs to retain a major rainmaker.

 

 

What law firms can actually learn

 

Three genuine lessons emerge from the comparison, and they are worth taking seriously precisely because they do not require ignoring the structural differences.

 

The first is on measurement breadth. Law firms that evaluate partners exclusively on financial metrics, revenue originated, hours billed, realisation rates, systematically underpay a range of contributions that are essential to the firm's long-term health: the senior partner who mentors the next generation of rainmakers, the practice group head who builds a team capable of handling institutional mandates, the partner who takes on management responsibilities at personal financial cost. Consulting firms have designed compensation systems that capture these contributions because their profitability depends on them. Law firms that want to reduce the hoarding and silo behaviour that pure EWYK encourages need to follow the same logic, not by importing the scorecard wholesale, but by deciding which non-financial contributions they most need to incentivise and building those explicitly into the formula. The weight assigned to those contributions will necessarily be lower than in consulting. But zero is the wrong answer.

 

The second lesson is on buy-in design. The way most law firms structure capital contributions, large, non-interest-bearing, and tied to ownership percentage, creates a financial burden for incoming partners and a source of resentment for departing ones. The consulting model of a fixed, modest buy-in treated as an interest-bearing loan, with a structured return on departure, is straightforwardly fairer and creates fewer perverse incentives. There is no structural reason law firms cannot adopt this. Several already have.

 

The third lesson is the most important, and it is the one the comparison is actually pointing at. In consulting and accounting firms, the compensation system works because the firm owns something that the individual partner cannot replicate alone: the brand, the methodologies, the client contracts, the proprietary data. The firm is genuinely greater than the sum of its parts, and every partner knows it. In law, that institutional weight is real but more contested. A law firm's brand, its institutional client relationships, its bench depth across practice areas: these are genuine assets that individual partners could not replicate as sole practitioners. The firms that manage compensation most successfully are those whose partners have genuinely internalised this. Where partners believe the firm platform materially enhances what they could achieve independently, they accept the constraints that collaborative compensation models impose. Where they believe they could do just as well alone, no compensation formula will hold them.

 

The comparison with consulting and accounting firms is most useful not as a source of technical reforms to import, but as a prompt to ask a harder question: does this firm give its partners sufficient reasons to believe that the institution is worth more than their individual practices? If the answer is yes, a more collaborative compensation model becomes achievable. If the answer is no, the compensation system is the wrong place to start.

 

Wrap-up

What do these compensation systems look like in practice, across the industry as it actually exists in 2026? The answer is that the pure models have largely disappeared. Pure lockstep is an endangered species. Pure eat-what-you-kill still exists at the margins but is rare among any firm with genuine institutional ambitions. What dominates is a spectrum of hybrid systems, all of which share a common characteristic: they attempt to reward both individual performance and collective contribution, and most of them do so imperfectly.

The most important lesson from the comparison between systems is not which one is theoretically optimal. It is that the compensation system and the culture of the firm are not independent variables. A firm cannot adopt a lockstep model without the culture of trust and collective commitment that makes it function. It cannot adopt an eat-what-you-kill model without accepting the individualism and silo behaviour that comes with it. The hybrid model is not a compromise between the two that avoids both problems. It is an attempt to navigate between them, and it requires more active management than either of the pure models.

The best compensation systems are not the most ingenious or the most precisely calibrated. They are the ones that partners have genuinely internalised as fair, that are applied consistently, and that are explained honestly when challenged. A simple system that partners trust will outperform a sophisticated system that partners resent. The sophisticated system will be gamed. The simple one will be supported.

The chapters that follow examine the specific dimensions that any compensation system has to navigate: how to measure performance beyond revenue, how to manage partner evaluation, how to handle the quite good partner who forms the backbone of every firm, how to structure origination credits without destroying collaboration, and how to design a system that survives the generational transition, the private equity wave, and the AI disruption that are reshaping the profession simultaneously. None of these questions have clean answers. But they all have better and worse answers, and the goal of this book is to give the people who have to make these decisions the framework to arrive at the better ones.