In November of Last year Dewey & LeBoeuf chairman Steven Davis told sibling publication The National Law Journal that though the firm had seen its structured finance work evaporate, it was in a stronger position than most other large New York firms to weather the financial storms, given its global spread and practice group diversity. The firm’s M&A head, Morton Pierce, said the firm was expected to hit budget, and projected an increase in profits for 2008.Six weeks later, Davis and firm executive director Stephen DiCarmine quietly told 19 partners that they should start exploring their options and that their compensation would be reduced to only their monthly draw. The luckier ones in the group had their compensation reduced to the standard draw of $25,000 per month, or $300,000 per year; lower-tier partners saw that draw reduced further to $10,000 per month-less on a yearly basis than a first-year associate.

Those partners joined roughly 47 others who, since December 2007, have experienced what Davis calls “substantial performance-related reductions to their compensation.” The cuts have been as much as 80 percent of their total compensation. Together, the 66 people make up nearly one in five partners at the firm.

Affected partners include not just younger partners, but some with 25-30 years in practice. They include lawyers in both litigation and corporate work, trusts and estates, and structured finance, among others.

This story is based on interviews with three current and three former partners, who spoke on the condition that they not be identified.

Far from weathering the financial storms, those partners say, the firm’s partnership has been rocked severely in the past 15 months. Senior management told the partnership at the firm’s annual meeting last spring that they expected revenues to rise by 15-20 percent, recalled several of the partners. It seemed an aggressive budget at the time, some noted. “They said, we know we’re in a down economy, but we can make this work,” recalls one. “And here’s everybody’s target comp.”

Instead, revenues came in well below 2007′s, according to those partners. In turn, many partners received only 60 percent of projected compensation at year-end.

A smaller group of star rainmakers and executive committee members with special “guarantees” on annual compensation have not seen the same hit, sources say.

The steps have left partners fearful. But despite the haircuts and the drop in partner compensation, relatively few have left. “The people that they’re hacking aren’t leaving,” says one. “There are lots of people hiding under their desks.”

Davis confirms that “a few” partners were paid at 60 percent, but insists that the “vast majority” earned the compensation they expected. He denies, however, that some partners have compensation guarantees (though new lateral hires have compensation fixed for two to three years), saying that the firm is simply rewarding superior performance.

Davis also asserts that firm revenues were flat, not down, at just above $1 billion for both 2007 and 2008. He says that profits dipped only 4.6 percent this past year, to $315 million.

Life at the firm has been turbulent in other ways. Since last April, Dewey has trimmed four offices, including Jacksonville; Austin; Hartford; and in October, Charlotte. In February the firm announced that it was closing its 16-lawyer San Francisco office and relocating those lawyers and staff to its Palo Alto office. Lawyers affected were offered a choice: move to another office, or, presumably, take their talents elsewhere. In early March the firm also announced layoffs of 100 staff and 15 lawyers in its London office.

Domestic associates have not been spared. In December, associates in structured finance were axed; a group of eight from the Los Angeles office were gone the next month. Another few dozen have been terminated via what DiCarmine calls a regular performance review process.

Davis characterizes the recent events as an intensification of the firm’s long-term strategy of replacing poor performers with higher-producing laterals. He points to new arrivals such as bankruptcy veteran Michael Kessler from Weil, Gotshal & Manges; cross-border M&A partner Christophe Salamon from Clifford Chance in Paris; and Howard Adler, a senior executive compensation lawyer from Fried, Frank, Harris, Shriver & Jacobson.

But, given the poor job prospects facing lawyers generally, the firm decided not to enforce partner departure dates, he says. (Associates, however, were not so lucky.) “We’ve become a punching bag,” Davis says, “because we haven’t outright fired people.”

What about those much-vaunted practice and client synergies that the legacy firms said drove the merger? Several partners say it’s been a misfire.

Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae merged in August 2007, and it’s been rough sledding since. The relationship wasn’t helped by an early misstep–last January, LeBoeuf partners were steamed that the firm hadn’t distributed a promised merger bonus intended to even up the fact that Dewey Ballantine had a huge unfunded pension liability.

Davis insists that the bonus, which a partner says totals anywhere from under 10 to 25 percent of annual compensation, depending on seniority, has been paid, but several partners say they are still waiting for it.