Another big step in the legal profession’s salary structure as A&O Shearman bucks a trend

Albert Goodwin, editor of LawFuel Big Law

Major changes to law firm pay structures have been in the headlines recently, but now there’s a move, A&O Shearman has bucked the recent trend at large law firms towards a permanent partner pay scale by introducing a full equity-only remuneration model has.

A&O Shearman has introduced a three-tier, modified lockstep compensation system for its partners and is moving towards a pure equity partnership structure.

The move follows the “groundbreaking” merger of Allen & Overy and Shearman & Sterling, which was completed in May 2024.

The new partnership compensation model

The new partner compensation model unveiled by A&OShearman’s leadership team categorizes the company’s approximately 800 partners into three different levels: entry-level, core and super.

What makes a “super” partner at A&O Shearman?

Money of course.

The “Super” tier is reserved for the company’s top performers, who are affectionately (or jealously) referred to as “high achievers” by company insiders.

The company’s compensation structure aims to strike a balance between rewarding exceptional talent and fostering a collaborative environment.

Adopting an all-equity partnership model would be a major change for the firm’s predecessor firms, which previously had both non-equity partners and employees as partners.

Cravath made headlines with its “black box” pay model, an opaque pay model that rewards top earners with big money but can lead to confusion and ambiguity about how high statutory salaries are handled.

The firm’s transition to a full-participation model runs counter to the current trend at Big Law, where many firms rely on the salaried partner level.

Cleary, Gottlieb, Steen & Hamilton recently added a non-equity tier, citing the need for “innovation and adaptation” in the legal industry.

Traditional types of compensation include the lockstep model, which is based solely on seniority and is certainly falling out of favor, and the “eat what you kill” model, which provides bonuses for higher earners.

The new system A&OShearman is developing allows greater flexibility in rewarding top performers while retaining some elements of the lockstep structure.

Strategic implications

A&O spokesman Shearman said the new compensation approach aims to improve the company’s competitiveness in attracting and retaining top talent while encouraging collaboration.

The company’s strategy is consistent with the industry’s broader efforts to reward high performers through bonus structures, “super pointer” tracks and the like.

And obviously younger partners are encouraged by the prospect of moving up the scale to higher pay.

A&OShearman changes

The comprehensive reform of lawyers’ salaries at A&O Shearman is part of a larger series of changes at A&O Shearman, which includes a planned reduction of around 10 percent in the equity partnership – with almost 4,000 lawyers in the merged firm.

They recently closed the firm’s Johannesburg office, which resulted in significant negative publicity from former employees and others, who called the move “incredibly distasteful”.

They are also closing the company’s consulting practice.