Are Non-Equity Partnerships Really that Bad?

As non-equity partnerships gain in popularity, it is easy to feel as if the sky is falling on the traditional path to success in law. A significant percentage of partners in large firms hold no equity. Attorneys who make lateral transfers that would once have resulted in equity partnership are now being offered non-equity partner positions. Firms are not above poaching high-income earners, including full partners. Associates are finding alternatives to the partner-track or bust model. Meanwhile, equity partners in the right position are taking home an ever-increasing slice of the pie.

The Cat’s Out of the Bag

A couple of weeks ago, The Wall Street Journal brought the issue of non-equity partnerships to a wide and non-lawyer audience. It highlighted, among many other things, how the pay spread between equity partners and associates has increased. It also spoke of the death of the traditional path to partner status. While the prevalence of non-equity partners isn’t news to lawyers, the amount of press it’s getting has jumped the last several weeks. It is being written about as the end of an era.

Not All Bad

In an industry where tradition and prestige matter a great deal, it isn’t surprising that such a sea change has generated angst. Still, this is by no means the only adjustment law firms are undergoing. At the risk of sounding pollyannish, the end of the traditional partnership model may not be that apocalyptic. After all, if given the choice many senior lawyers would prefer to be a non-equity partner than of counsel. And with the economic forces in play after the Great Recession, a shift to more performance-based compensation, including non-equity partner pay, was perhaps inevitable. The criticisms of this reliance on non-equity partners are certainly legitimate. Can you even call a non-equity partner a partner? It must just be a coincidence that equity partner profits are growing strongly while non-equity partner pay is stable, right? Still, at its best non-equity partner positions can provide a way for associates to advance both their careers and their book of business while better serving clients and (of course) generating profit for equity partners. For senior lawyers, the benefits include:

• The same prestige. This affects more than pride. Most senior lawyers say they have an easier time generating business under the title of partner.
• Decent pay. While having equity is, of course, nicer than not having it, a non-equity partnership should still come with a comfortable salary.
• Less time rainmaking. Partners are forced to spend an increasing amount of time generating business, rather than practicing law. This is increasingly a main factor for gaining equity partnership. With non-equity partners, that pressure is lessened somewhat.

Of course, there can be problems. If it isn’t clear what the standards are for becoming an equity partner, for example, both associates and non-equity partners can quickly become unmotivated and disillusioned. Like any other business model, firms increasing their reliance on non-equity partners must have clear goals, expectations, and desired outcomes for them to succeed.

Related Resources:

• Is Equity Partnership the Right Choice for Every Associate? (FindLaw's Greedy Associates)
• Tips for Drafting Equity Partner Agreements (FindLaw's Strategist)
• Percentage of Equity Partners Down at BigLaw (FindLaw's Strategist)
• Learn About Our DIY Business Formation Services (FindLaw Forms & Services)