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Consider three partners with the 2018 performance metrics shown in Table 1. Which one contributed most to firm profit? Partner A is a tax partner who worked hard serving clients willing to pay for the time billed; Partner B is a deal lawyer whose major client did no major deals last year; and Partner C is a junior litigator who discounted heavily to win a big case that then settled early.

Partner compensation committees throughout Big Law will grapple with this kind of question in the coming weeks. Many will incline to believe that Partner A (who kept busy on high realization work) contributed robustly to firm profits, while Partner B (who struggled to get busy and had average realization) contributed a little, and Partner C (with soft hours and very low realization) probably didn’t contribute anything at all.

It would surprise many compensation committees to know that all three partners made equal contributions to the firm’s profit pool. How can this be? Simply put: partners’ intuitive sense of profitability overemphasizes the value of hours and realization, and undervalues leverage. This is particularly a problem at firms with wide ranges in partners’ practices on these metrics.

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