When Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae, 2 old line firms, merged in 2007, they formed an international behemoth poised to benefit from the booming global economy.  Now, 5 years later, the firm's short-term goals are unfulfilled. Dewey & LeBoeuf, like many other law firms, has failed to see a meaningful recovery from the lean post-financial crisis years, posting sluggish results in 2011, with no increase in earnings over 2010.  There are tens of millions of dollars in deferred compensation, owed to Dewey’s partners - some have been told they are being paid a fraction of what they were promised.  The firm is cutting 5% of its lawyers and 6% of its staff.  Nineteen of its 300 partners have left Dewey since January, including heads of major practice areas. About a dozen more departures are expected. While some attribute the turmoil to financial missteps by firm management, Dewey's problems also appear to have arisen when, like other BigLaw firms, Dewey jettisoned traditional notions of partnership in favor of a star system.  A free-agent market for top talent has changed the corporate law landscape, both financially and culturally. Aftermath of the Merger. After 2007, the firm went on a hiring binge, poaching big producers away from rivals with multi-year, multi-million-dollar guarantees.  In 2011 alone, it brought on 37 so-called lateral partners.  On top of those obligations, the firm, in order to retain essential talent at the time of the merger, gave contracts to dozens of its partners. These enormous compensation commitments, combined with disappointing financial performance, have created a significant shortfall, forcing the firm to slash or defer pay for numerous partners.  In turn, partner and staff morale is at an all-time low. The legal market has failed to return to prefinancial crisis levels.  Many of the lucrative practice areas that fueled prior growth - securitizations, M&A, and and real estate haven't produced like before.  At the same time, expenses, which include the rising pay for young associates just out of law school, continue to accelerate.  Further adding strain to firms’ finances are corporate clients who, operating in an uncertain environment, have become increasingly resistant to fee increases and are demanding discounts. To grow, law firms are merging, as Dewey did.  In 2011, there were 45 completed mergers, a 67% increase over 2010.  Or, they could add lateral partners instead of relying on internal promotions, as Dewey did.  Dewey Chairman Steven Davis defends the firm’s strategy and prospects, saying the firm’s revenue was up slightly in 2011, though growth was offset by increased expenses, and added that billings are up substantially so far in 2012.  Dewey advised Dell Computers on its $1.2 billion acquisition of SonicWall, a deal announced Tuesday. But in such as an approach, a law firm's compensation system can become a two-tiered structure, where the highest-paid partners can make more than 12 times as much as the lowest-paid ones.  High end, so-called rainmakers make millions of dollars a year executing corporate mergers and handling high-stakes business litigations.  At Dewey, this group includes Jeffrey Kessler, head of litigation and a prominent sports lawyer; Ralph Ferrara, a securities lawyer in Washington; and Richard Climan, a Silicon Valley M&A lawyer.  Morton Pierce, a corporate partner in New York, has an annual $6mn guarantee according to two people speaking on the condition of anonymity. On the low end, the majority of Dewey partners - 'service partners' - are not responsible for client relationships.  They handle more tedious legal tasks like drafting briefs and executing merger documents.  And they're paid accordingly - about $450,000 a year.  Meanwhile, according to Mr. Kessler, "The value for the stars has gone up, while the value of service partners has gone down." Yet there are still a small number of firms — like Cleary Gottlieb Steen & Hamilton and Cravath, Swaine & Moore — that hew to a more traditional seniority-based, or lockstep, compensation system where partners are paid in a narrower band. Lawyers say that the move toward a wide disparity in partner pay can lead to morale problems and infighting. In addition, big mergers and the rabid hiring of laterals can damage a firm’s fabric, they say. "You go to the partner meetings and you don’t know who your partners are anymore," said Steven J. Harper, a retired partner at Kirkland & Ellis and adjunct law professor at Northwestern University. " At a cultural level, you create problems because you lose a shared sense of community and a shared sense of purpose." Both Dewey & LeBoeuf currently has about 1,100 lawyers in 25 offices globally.  But 19 partners have left so far this year, including:  William Marcoux, co-head of Insurance, who moved to DLA Piper; Timothy Moran, a corporate lawyer in Washington, left for Sidley Austin; John Cobb, head of leveraged finance, left on Tuesday for Weil, Gotshal & Manges. "Dewey remains a great firm with terrific lawyers," said Peter Zeughauser of the Zeughauser Group, a consulting agency for law practices. "But running a firm built on mergers and laterals is a high-wire act." Click for the complete referenced story:  [Dealbook, 3/15/12].