Cravath Swaine & Moore, a renowned Wall Street law firm, has recently implemented a salaried partner tier as part of its efforts to adapt to growing competitive forces in the legal industry. The move follows a trend seen among other top-tier firms in restructuring their pay schemes to better retain talent and allocate resources more effectively.

The introduction of the salary partner role was disclosed in an internal memo written by Faiza Saeed, Cravath's presiding partner, and viewed by Bloomberg Law. Saeed highlighted the firm's commitment to retaining and promoting exceptional legal professionals at all levels to ensure their expertise benefits clients.

Non-equity partner tiers, where lawyers receive fixed salaries rather than a share of profits, were previously uncommon among Wall Street's elite firms. However, they are now increasingly used as a means to incentivize lawyers, enhance retention rates, and free up additional funds for top-performing partners.

This strategic move by Cravath reflects the recognition that traditional law firm structures may no longer be suited to the evolving legal landscape. Bruce MacEwen, a law firm consultant, stated, "The old structure is showing its age" and acknowledged that the century-old bimodal career structure in law firms may have reached its limit.

Cravath's decision comes amid reports that peer firm Paul, Weiss, Rifkind, Wharton & Garrison is also considering implementing a non-equity partner tier in 2024. The sources affirm that Cravath established its non-equity partner tier towards the end of 2021, concurrently with a significant change to its lockstep pay model, which previously based partner compensation solely on seniority.

At present, Cravath has between five and ten partners within the salary tier, according to anonymous sources familiar with the matter. Other prominent firms, such as Kirkland & Ellis and Simpson Thacher & Bartlett, have already introduced non-equity partner tiers, with the former being recognized as the world's most profitable firm.

Michelle Fivel, a partner at legal recruiting firm Hatch Henderson Fivel, explained that the adjustments in partnership structures aim to help firms stay competitive in the hiring market. These modifications offer greater flexibility in compensating rainmakers more, promoting high-performing attorneys, and attracting lateral talent.

Cravath, renowned for its expertise in mergers and acquisitions, has built a distinguished reputation over its 204-year history, advising prominent clients such as Amazon, Walt Disney Co., and Johnson & Johnson. Despite its relatively small partnership of 97 lawyers, the firm achieved impressive average profits of approximately $4.7 million per partner last year.

While Cravath has traditionally experienced limited partner departures, it has faced some notable exits in recent years. Notably, dealmaker Damien Zoubek joined Freshfields Bruckhaus Deringer in 2021 as co-head of its M&A practice, and M&A partner Andrew Elken joined Latham & Watkins earlier this year. Additionally, a group of partners, including David Portilla, the former head of Cravath's bank regulatory practice, joined Davis Polk & Wardwell.

In response to industry developments, Cravath expanded its presence by opening an office in Washington earlier this year and hiring notable government officials like former acting attorney general Jeffrey Rosen. The firm has also launched an English law offering in the UK, attracting talent from Shearman & Sterling and Latham & Watkins.

Saeed emphasized in her memo that lawyers in the salary partner and of counsel positions can still be considered for equity partnership. This fluidity in career paths reflects the firm's commitment to aligning with current market trends in legal talent while benefiting both its professionals and clients.