Equity Partnership Isn't What It Used To Be - Major, Lindsey & Africa

1. Home
2. Insights
3. Equity Partnership (Still) Isn't What It Used To Be

ARTICLE

Equity Partnership (Still) Isn't What It Used To Be {{Page_Thumbnail}} Jeffrey Liebster

The law firm industry, which continues to undergo dramatic change, remains consistent on this issue. We live in a world in which “law firms” have become “law companies”; a world in which the barriers to true equity continue to grow and a world in which being an equity partner might no longer be the holy grail. In fact, it may not be better for a lateral to enter a new firm as an equity partner. Very little about this issue has changed over the five years plus since the below article was written in 2018: Here’s why: Capital Contributions Historically, firms have collected capital contributions from equity partners only. Although this policy is changing and a handful of firms require contributions from nonequity partners, the majority of firms do not collect capital from nonequities. This is a big deal! While the norm is for equity partners to pay in capital equaling between 25 and 35 percent of the current year’s compensation, some firms require as much as 65 percent, and most partnership agreements contain provisions that give the firm up to several years to repay the partner should she or he leave. For new partners, it’s much more sensible to have an interim period with guaranteed compensation, eligibility for bonuses and no requirement of a major investment of capital — particularly for a lateral in the process of integrating into a new platform and culture. This interim period gives the lateral the best possible opportunity to decide if he or she wants to make a long term investment of a significant amount of capital in the firm. At-Will Employment Equity partnerships used to be like tenured professorships: Once you crossed that line, your job security was hard to lose. These days — as law firms increasingly adopt a more corporate model, including with nonlawyers brought into management positions and heightened scrutiny of individual metrics — everyone at a firm, regardless of title or past performance, is an employee at-will. Some firms are more compassionate or patient than others, but even the firms that have historically relied on strong, long-term institutional relationships are looking for partners at all levels to generate new matters and business relationships. Breathing Room Most firms have significantly greater business generation expectations from equity partners. Even for the most historically successful rainmakers, it is common for there to be a ramp-up or transitional period, during which fees generated at a new firm trickle in and first year results generally suffer as a consequence. This is also usually the case with less experienced partners who are bringing business and prospects with them and hope to increase their book of business as a result of the move. A well-defined path to equity partnership, including an interim period, during which the pressure to produce is lightened, can be of great value in ensuring the long-term success of the lateral at the new firm. Many firms have a policy that includes a minimum one- or two-year period during which a lateral can really get to know his or her new partners, understand how to navigate the processes and operational aspects of the new firm and introduce and integrate her or his clients into the firm. If the lateral and the firm are a good fit, equity is the logical next step. Compensation Structure Very few firms are strictly lockstep or have rigid retirement policies that include mandatory de-equitization. Compensation structures are more fluid, giving management greater discretion to regularly adjust points or other indices of interest throughout a partner’s career. Bonus pools for all types of partners are more prevalent and appear to be growing larger, and there is a concurrent trend toward lowering draws and back-ending compensation for equity partners to give management more power and discretion. Nonequity, nonshare or income partners generally receive the lion’s share of their compensation as a fixed monthly draw or base and are handsomely rewarded through bonuses for outstanding results. Hybrid Partnerships There is a trend toward partnership structures where income or nonequity partners are now “hybrid partners.” That means a portion of their compensation, typically around 10 to 30 percent, is based on the performance of the firm. In the case of a 20/80 arrangement, 80 percent of the partner’s compensation is guaranteed and the remainder is determined by budgeted or targeted estimates of annual firm revenue. The good news is that these partners reap some of the benefits of the upside when the firm exceeds its budget or target. The bad news is that this comes with a concurrent requirement of a (often reduced) capital contribution. Some firms that have adopted this model have gone so far as to market themselves to prospective laterals and new lawyers as “one-tier” partnerships. But are they really? Those same firms do not include them in the annually reported statistic of PPP (profits per equity partner). AmLaw and NLJ define equity partners as lawyers who receive 50 percent or more of their compensation as equity, i.e., a share in firm profits. Everyone who receives less of a share of profits is nonequity; which basically means that, according to the standard in the industry, he or she is primarily a salaried employee of the firm. The inherent contradiction is obvious. The same rings true in 2025. The rationale for a nonequity-to-equity path remains strong and highly relevant for those considering changing firms. Instead of eliminating certain opportunities by insisting upon immediate equity, it is wise to take a look at the realities of the market and the value you bring. The fact is that lawyers and firms increasingly recognize the importance of a ramp-up period for laterals. Many firms now offer and negotiate structured interim roles to non-equity partners with guaranteed compensation and bonus eligibility, allowing new partners to integrate culturally and operationally before committing capital. During this transitional time, laterals have the chance to not only demonstrate their bona fides, but also to evaluate if they want to make a long-term investment in their new firm.

Insights

• Career Navigation
• Compensation
• Diversity & Inclusion
• Governance
• Industry Trends
• Talent Development

Our Services

• Associate Recruiting
• Board Services
• In-House Counsel Recruiting
• Interim Legal Talent
• Law Firm Management
• Partner Recruiting

READ THE COMPLETE ARTICLE AT law360.com

Jeffrey Liebster

LinkedIn Email

Jeffrey Liebster is a Partner in the Partner Practice Group of legal recruiting firm Major, Lindsey & Africa. Based in New York City, Jeff helps partners, partner groups and law firms navigate the delicate process of lateral hiring.

Read Full Bio

Insights

Generic Content Consultants leadership-team adam-harris adam-johnson adam-stocker ahana-nabhajit allison-laframboise allison-rosner amanda-turchin amy-carlin angela-hart-edwards anna-moss annemiek-wassink anne-miller arthi-cobb arthur-chiles ben-cockram benjamin-kaufman ben-klafter cara-bain carla-marinaccio catherine-enck cherie-basener christa-ford christopher-williams connie-chung craig-appelbaum craig-donaldson crichton-clark cynthia-barnardiston dale-durham dallas-daniels dana-baughns danica-perry daniel-davila danielle-thomas daniel-schiff darren-rashkin dave-beran diego-ash donna-rosenberg elisa-dixon erica-hayward eskor-edem filippo-falchi fred-mcintosh gaouthaman-balasubramaniam haylee-harrison helen-kim hope-jamison hugh-e-tanner iris-zuckerman james-lee james-otteson james-rizzo james-sayce jared-wheatley jason-keller jay-brenner jelani-roy jenna-mcgrath jennifer-juarez jerry-temko johnathan-beckett jon-friedman joseph-rees joseph-tortorici julia-shapiro karen-andersen karen-chin-su-jin kassem-lucas kate-olgers kim-mallett kiran-makwana kirk-coleman krishna-patel larry-scott lindsay-hill lisa-owens louis-ramos luke-woodward lydia-mcmahan madeline-stockton martha-marty-fay-africa marysol-galaviz maureen-dry-wasson maurice-allen mauricio-gonzalez michael-albino michael-kornak michael-pace mindy-allen mla-staff nanyamka-keyane-fleming navy-binning nick-georgiou nick-spenkelink nina-houston noriko-kuge pamela-salling portia-white prasanna-karunamoorthy remco-abeln ria-karnik riley-catone robert-brackley-burridge robert-conrad robert-mannino ronald-sally ronald-wood rose-stockton ryan-ellard sarah-hardgrove-koleno seema-samtani shannon-eisenberg sheila-l-amiry sonica-legge sophie-burns stephanie-crosse steven-d-henry susanne-rhodes tam-pham thom-burke tim-jeveons tisa-bizzarri tracy-burrows tray-shields trish-nowak tyler-myers vanessa-hudson whitney-norris will-hallett alisa-tazioli amir-khan amy-vanderhoof amy-katz andrew-glynn andrew-teig andrew-ufberg anna-gorodetsky annie-jennings anthony-graham anthony-wiggins ashish-raivadera barrett-avigdor beth-woods bianca-adams brandon-vidal-lubin brent-harris brian-davis carlos-pauling carol-morganstern carol-simon casey-feldman chad-marlow chris-gunkel christian-worthy christie-babinski christine-kennedy cloud-schnoebelen darin-morgan david-maurer david-schwartz deborah-ben-canaan deborah-thompson desha-dardenne dimitri-mastrocola ed-de-castro edina-beasley elena-bajada elizabeth-long elizabeth-sinn elizabeth-smith evangelos-apostolou gigi-birchfield gregory-richter heather-fine heather-fiorella holly-buchanan howard-cohl jacki-wandrey jack-mcdouall jacqueline-lefebvre jacquelyn-knight jamie-dobert jane-fuks janet-markoff jay-kim jeffrey-liebster jennifer-haas jennifer-silver joanna-herman john-cashman jonathan-wylie jon-lindsey katelyn-braun kate-reder-sheikh kathryn-martin keith-diconsiglio keith-wetmore ken-goldner kimberly-donlon kirsten-vasquez kristy-robinson laura-weyer laurie-lebrun lee-udelsman lina-guo maggie-kwok maggie-tassi margot-jackson matthew-weaver melba-hughes merle-vaughn michael-ascher michael-sachs michael-shulklapper michelle-obrien miriam-frank nancy-reiner nathan-peart naveen-tuli nesli-orhon nicole-lipman olivia-seet pamela-dicarlantonio paul-allen paul-williams pete-boerner peter-ocko peter-van-son pj-harari practice-specialists randi-lewis rebecca-glatzer ricardo-paredes richard-hsu rick-skoff robert-brigham robert-graff robert-major robert-zinn roger-garceau ronald-nye ron-ciardiello sarah-van-steenburg sharon-garb sheri-michaels shreya-regmi stacey-breen stephanie-biderman stephen-springer stuart-murray tanja-albers tina-cohen-nicol tom-stretton There is currently no related content for this person An error has occurred and the search service is currently unavailable.We apologize for the inconvenience. Show More More Insights No More Results