Sliced Too Thin-The Danger of Wide Partner Compensation Spreads

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As firms scour the market to attract laterals with large, portable books of business, they have become more willing to offer almost anything—special considerations, huge compensation, guarantees, and bonuses—to lure them. In our article ["Crazy Like a Fox," February 2012], we noted with concern that the spread from lowest-to-highest partner incomes at some firms has increased to 10:1 or 12:1, and even 20:1. To reward top producers, we wrote, some firms had begun reducing the compensation of lower- and middle-tier partners, even when they had met or exceeded budgeted targets for client originations, hours worked, and hours billed.

This is a dangerous development. As shown by Dewey & LeBoeuf's woes, widening compensation spreads can destabilize firms. Here's how:

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