Lockstep pay model at center of Wachtell departures
Wachtell, Lipton, Rosen & Katz co-chair William Savitt and five other partners are leaving the firm for Gibson Dunn, a significant move that has drawn attention to compensation practices and the evolving structure of elite corporate law firms. The defection, set in motion by a recruiting pitch in late May, has prompted rival firms to reach out to Wachtell lawyers, according to people familiar with the matter.
The move traces to a late-May breakfast at Nougatine, the Jean-Georges restaurant near New York’s Central Park, where Savitt met Orin Snyder, a Gibson Dunn litigator who represents LeBron James, Bob Dylan and Lady Gaga. “Wouldn’t it be fun to practice law together? Here, the sky’s the limit for you,” Snyder said over breakfast.
Gibson Dunn dangled a multimillion-dollar raise that would bring Savitt’s compensation to at least $20 million a year — and, beyond that, the scale of a global firm with some 2,200 lawyers and more than 20 offices around the world. Large firms have been luring top rainmakers with pay packages that rival those of NBA stars, contributing to a wave of partner moves.
When Savitt informed firm leaders that he and five other partners would be leaving for Gibson Dunn, they urged him to stay, according to people familiar with the conversations. Firm leaders said they were disappointed that a top partner negotiated a departure without discussion. Senior partners were shocked, people familiar with the discussions said, and they tried to convince him to stay, but they did not try to match the compensation Gibson offered.
After the news became public, rival firms began reaching out to Wachtell lawyers, and some partners at the firm started exploring outside opportunities, according to people familiar with the matter. “To recruit a Wachtell co-chair would have been absurd five years ago,” said Barbara Becker, the chair of Gibson Dunn. As one lawyer, speaking on background, asked, “What is Wachtell?”
Wachtell, with a single New York office and roughly 300 lawyers, remains the marquee destination for companies facing high-stakes mergers, hostile takeovers and activist shareholder battles. It is the most profitable firm in the world, though its revenue is a fraction of its larger rivals’. In a statement, Wachtell said it is “performing at its highest level across every metric” and that the firm “is having a record year, continues at the top of all the league tables and is as strong as it has ever been.”
The firm, which has about 80 partners, has lost some 16 partners since last year, some of whom went in-house or retired. It has also hired two partners, one from Paul Weiss and the other from Sullivan & Cromwell. Until 2020, Wachtell had lost only one partner to a rival in more than half a century. Last year, the departures began accelerating.
The moves reflect a divergence that began in the early 2000s between New York’s old-guard firms and a new breed of mega-firms. The mega-firms’ revenue skyrocketed compared with firms that chose to remain lean, and some once-elite firms lost stature in the profit-per-partner ranks, according to industry data. Some of the old guard has already disappeared: Shearman & Sterling and Cadwalader, at the time New York City’s oldest firm, were shuttered or forced to merge after waves of departures. Davis Polk has pursued rapid growth. Cravath, Swaine & Moore and Wachtell are among the few at the top of the prestige pyramid still hewing to a more traditional model.
The mega-firms, with roots in places like Chicago and Los Angeles, include Gibson Dunn, Kirkland & Ellis and Latham & Watkins. They provide one-stop services to banks, hedge funds and other large financial clients, raking in as much as $10 billion a year. Their dozens of offices let lawyers advise multinational corporations and private-equity firms on the ground, and Kirkland has opened offices in Nashville and Salt Lake City to entice new partners. As firms grapple with artificial intelligence, the larger ones have been able to invest heavily in proprietary models.
“You can be a predator one day, and prey the next,” said Thomas Reid, the chief legal officer at Comcast and former chair of Davis Polk. “They all changed their compensation models and walked away from culture. There is a point where if it all becomes about cash, no one is safe.”
At the center of the shift is the move away from the lockstep model, in which partner pay is closely tied to seniority. Firms that abandoned it lured stars with ever-bigger pay packages, creating huge disparities: at some firms, top earners command as much as $35 million a year, while at others the ceiling is $7 million. Wachtell has had a strict lockstep system for decades, with modifications in a few individual cases, and Savitt and others saw it as insufficient in scope. “The model of law firms compensating people based on how many years since they graduated law school, rather than their contribution to the enterprise, is not sustainable in a capitalist society,” said Jon Ballis, Kirkland’s chair.
Wachtell was founded in 1965 by Jewish outsiders to the waspy world of white-shoe law. Marty Lipton, one of the original founders, retains a role on the firm’s eight-person executive committee at 95 years old, and the firm is known for inventing the “poison pill” takeover defense, which makes it prohibitively costly for an unwanted bidder to acquire a large stake in a target company. According to people familiar with the matter, Savitt had been pushing for more resources for the litigation team and to clear the way for new leadership; the firm is still tightly controlled by a few leaders, including 79-year-old Ed Herlihy, one of the industry’s top dealmakers. Some of the firm’s largest transactions were driven by some of its youngest partners, according to sources within the firm.
Savitt, who clerked for the late Supreme Court Justice Ruth Bader Ginsburg, first met with Gibson Dunn just after winning a landmark trial for OpenAI against Elon Musk. He had worked at Wachtell for two decades.
The week also included an incident where a partner who was expected to make the move to Gibson Dunn as part of Savitt’s group is instead staying, recently caught on camera kissing a junior lawyer in Central Park and placed on a leave of absence; the video went viral on TikTok. Savitt and another partner who is leaving for Gibson have been in a relationship, the New York Post first reported. The relationship does not violate Gibson Dunn’s policies, according to people familiar with the firm; sources within Wachtell said nothing about the relationship was disclosed to the firm.
The lateral moves have also touched Cravath, which set the gold standard for the industry over its 207-year history, recruiting top Ivy League law school graduates and training them for lifelong careers while largely eschewing hiring from rival firms. Cravath has seen at least 10 departures in the past year or so, and in 2016 it was dealt a shock when star dealmaker Scott Barshay defected to Paul, Weiss. It wasn’t until 2021 that Cravath announced a modified compensation structure allowing a percentage of profits to be divided among high performers. In the 1990s it handled nearly one-quarter of deals by value; last year that share was 7%. By contrast, Kirkland and Latham together accounted for about 30% of all deal value last year.
Faiza Saeed, Cravath’s leader for the last decade, said the firm has been very intentional in staying small and occupies a different niche than its much larger rivals. “I don’t think the success of Lands’ End comes at the expense of Brunello Cucinelli,” she said. One approach, she said, is “about volume and output, like a factory, the other is about artisanship and quality and apprenticeship.” Saeed said she fears that if the firm grew too big it would be hard to maintain the same quality of work. “The last 15 years have seen many firms build around highly scaled, very commoditized work,” she said. “Cravath is 207 years old. Our view is, we’re happy with the tier that we occupy.”