It’s a high-class problem. As firm profitability climbed over the last 10 years—and especially in the four years since the pandemic’s onset—the compensation levels of seasoned partners in support practices (e.g., debt finance, tax, executive comp) have gotten out of sync with the partners’ market value, i.e., these partners are being paid materially above what they could realize through a lateral move, and some spectacularly so.

Of itself, this is not a problem. However, a firm’s profit is a fixed pie: Aggregate comp necessarily matches aggregate market value. The over-compensated support practice partners are being subsidized by under-compensated client relationship partners, i.e., partners who bring in the work being paid less than their market value. Material, sustained, cross-subsidies lead to the under-compensated partners decamping to rivals for higher compensation. It’s not an overnight exodus; rather, the dynamic plays out inexorably over a decade, such as happened with London’s Magic Circle and appears to be happening now at Cravath, Swaine & Moore. The consequent and necessary task for firm leaders is to pare back the comp of support partners.