What It Means to be a Law Firm Partner Now

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The Shift: What It Means to be a Law Firm Partner Now

Pick any one partner at an Am Law 100 law firm today. There’s nearly a 50/50 chance that the partner doesn’t get most of her pay from the firm’s profits. More than half of her pay may be salaried or guaranteed compensation, making her a nonequity partner.

That lawyer still gets a “partner” title to develop her client base, gets a billing rate nearly equal or equivalent to an equity partner, and may get to vote in partnership decisions. Law firms internally may consider her a partner like any other.

But she’s largely not entitled to profit from a big windfall that may come to the firm, nor would she have to sacrifice her compensation if the firm had to make a large investment expense in a given year. And overall, her nonequity status means different expectations for her practice growth, compensation and career trajectory.

For firms, this growing shift inside Big Law partnership ranks to make more lawyers salaried partners—instead of moving lawyers to the equity ranks, or keeping them as associates or counsel—can raise questions and challenges for leverage, profits and internal firm culture.

The Conversation

For the first time last year, Am Law 100 law firms added nearly as many nonequity partners as they did associates, American Lawyer reported this week as part of the Am Law 100 launch.

Law firms such as Gibson Dunn & Crutcher; Fried, Frank, Harris, Shriver & Jacobson; Willkie Farr & Gallagher; Vinson & Elkins; Fenwick & West; and Paul Hastings all saw double-digit increases in their nonequity ranks. These are just a few of the many firms rapidly expanding their nonequity tier.

On a full-time equivalent basis, firms have added two or three times as many associates and counsel as they did nonequity partners in recent years. But last year, Dan Roe reported, nonequity partner growth kicked into high gear, as the average Am Law 100 firm added 13 nonequity partners, compared to 16 associates and counsel. And on a percentage basis, the 5.3% growth of the nonequity partner tier among Am Law 100 firms more than doubled the 2.3% growth rate for non-partner attorneys (not to mention the 1% decline in equity partners).

The percentage of all partners who are nonequity now sits at 49.4%, up from 47.8% in 2022. In other words, the number of nonequity partners is likely to eclipse the number of equity partners in the next couple of years under the current trajectory, Patrick Smith reported.

Law firms have multiple uses for the nonequity tier, including those who are newly promoted from the associate ranks and who will be tested for productivity, Andrew Maloney reports. Other lawyers may include laterals and others with guaranteed compensation. Another category is for those partners who aren’t performing at the equity level and partners who are in practice groups where it’s harder economically to justify another equity partner. And finally, some partners may be in these ranks if they were de-equitized.

The Significance

As nonequity tiers grow, “there’s going to be a balloon of individuals, theoretically, ready for equity partner. And given the equity partner promotion ratios, they could be looking at a long-term problem,” noted law firm consultant Brad Hildebrandt, chair of Hildebrandt Consulting.

Indeed, law firms may have too many lawyers up for promotion to equity in the next few years, or those who are nearing the end of a lateral contract with guaranteed compensation.

Another challenge law firms face is making sure that the growing cohort of nonequity partners aids profitability rather than hampering it. Can these nonequity partners bill out and bring in significantly more money than they are paid as a whole?

Some large firms have already figured out how to make the nonequity tier profitable. Just look to law firms such as Kirkland & Ellis and Latham & Watkins, which have operated large two-tier partnerships for years and have seen growing profits per equity partner over time.

But the challenge of ensuring profitability from nonequity partner ranks may be most pronounced for those newer to the system or those firms that are approaching a partnership where the nonequity ranks begin to outnumber the equity tier.

On the individual level, lawyers who stay in the nonequity partnership tier indefinitely may face different expectations than an equity partner, and as a result, opportunities inside a firm may differ.

Are they still expected to grow a client base over time? Will they try to promote work for other departments to attempt to deepen a firm’s client relationship? Is the firm offering them opportunities for office, practice, or firmwide leadership? Will they treat their firm as a “home” if they don’t have the same risk/reward elements in their compensation package? And will that change law firm culture?

The Information

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The Forecast

Regardless of these questions, increasing the nonequity partner ranks appears to be working for most of the Am Law 100. As big firms closely manage who is in their equity tier, firms’ profit margins are growing over time.

Despite a year where the deal market lagged, Am Law 100 firms collectively saw average profits per equity tier rise 9.3% to $2.80 million in 2023 and compensation for all partners (including the equity and nonequity) rise by 6.2% to $1.75 million. That comes in a year where the Am Law 100 firm equity ranks contracted by 1%.

It’s a safe bet to predict that Am Law 100 nonequity partners will soon outnumber equity partners. Already, Am Law 20 law firms such as Kirkland, DLA Piper, Baker McKenzie, Sidley Austin, Hogan Lovells and Greenberg Traurig have profited from a larger proportion of nonequity partners compared with equity. But will it work, financially and culturally, for all big firms?

Christine Simmons is a senior editor for business of law news. Contact her at csimmons@alm.com and find her on Twitter: @chlsimmons