The perceived perks of equity partnership fall into three broad categories: money, power and access to information. Conventional wisdom has it that compensation is certain to skyrocket once a lawyer can lay claim to a share of the firm’s annual profits. It’s also assumed that each partner, as an owner of the business, has at least some authority to influence its strategic direction. And many lawyers expect partnership to come with a kind of security clearance—to pore over the firm’s financials, look up the salary of any staff member and discover all manner of internal secrets. Some of this is true. Much of it isn’t.
It takes years of hard work and personal sacrifice to arrive at the top of the profession. Yet associates and income partners pursue equity status without a clear picture of what lies ahead. That presents an obvious challenge: how can you prepare for a role that you don’t understand? Fortunately, the legal industry doesn’t have to be such a mystery. In fact, life inside the inner circle has relatively consistent benefits and pitfalls. What follows is a frank guide to what equity partnership is truly like at large and mid-size firms throughout the profession.
A candid look at compensation
The moment you become an equity partner, you live under an entirely different compensation model. At most firms, a powerful committee will evaluate your contributions to the business and determine what percentage of overall profits you deserve. That approach can drastically bolster your earning potential. When your firm has a banner year or the wider market is at its frothiest—think back to the pandemic, for instance, when the global demand for legal advice soared—you’ll do tremendously well, far better than you would as a salaried employee who receives a performance bonus. In all likelihood, this is not a shocking reveal. On the subject of money, the prevailing gossip is basically correct: equity partners make a lot of it.
It’s not so easy, however, to decide how much money each partner should take home. In general, a compensation committee has to divvy up the profits based on certain guidelines. Perhaps the partnership has instructed it to reward achievements like client origination, the accumulation of billable hours and time spent in management. That’s a tricky job. How should the committee handle a partner who recently landed an impressive client but failed to achieve much else over the year? Should that person earn more than a partner who billed 2,200 hours, led a practice group and generated a modest amount of new business? No formula can calculate an airtight answer to either question. Ultimately, the committee will have to rely on its broad discretion to render a verdict. Some committees wield that power with care; others abuse it, lavishing undeserved riches on friends and allies.
Even if you belong to an equity partnership with a track record of honest and ethical leadership, you’ll still need to navigate another money-related hazard: the open compensation model. At the vast majority of firms, you’ll know the precise income of everyone else at the equity level. What you discover can be psychologically painful. Consider how it might feel to find out that the partner across the hall is set to earn $600,000 over the coming year, while your compensation sits at $500,000. Deep down, you understand that your colleague is the stronger rainmaker. But you also work really hard. No matter how much money you make (and, as an equity partner, you’ll make plenty), it’s difficult to learn that the firm values another partner more than you. That knowledge can poison relationships and wreak havoc on morale.
Here’s the simplest way to prevent that outcome. As long as you have some confidence in the compensation committee, accept its decision and move on with your life. Devote your finite time to building client relationships, delivering impeccable work and helping the firm thrive. That’s the actual job of an equity partner. Not stewing in your office, in a state of rage, over financial figures that you have little control over in the first place.
The real power that partners wield
In addition to the income boost, one chief benefit of equity partnership is the ability to delegate work. When a client calls with an urgent problem, you have the authority to approach an income partner and issue a clear directive: “I need you to effectively run this file by yourself. I can spare a couple of hours a week to help, but I have to devote the bulk of my attention to another matter.” Needless to say, you can’t bombard your subordinates with an endless stream of sudden requests. Everyone will quit. But you’ve won the right, as an equity partner, to assign incoming work as you see fit.
Quite often, though, that’s where your power will stop. Every equity partner is technically an owner. But, long ago, law firms abandoned collective management on the basis that it’s terribly inefficient—if not downright dysfunctional—to let dozens of lawyers debate and vote on all operational decisions. By the 1980s, as Precedent has reported, authority inside most firms “became concentrated in the hands of a small managerial team, such as an executive committee, that excluded the majority of partners.” That structure still dominates the industry today. When a law firm invests in new technology, moves to a different office building or announces an updated work-from-home policy, the executive committee likely acted independently to make it happen.
Unless you belong to that committee, your sphere of influence as an equity partner will almost certainly be limited to the associates and income partners who support your practice. That’s not the sort of institutional clout that a typical business owner would enjoy. Remember, however, what you will have: the freedom to build up your own client base and run your own files. Throughout the profession, it’s rare to have that measure of control over the direction of your career.
The information firewall
As a newly admitted equity partner, you might expect to have unfettered access to the firm’s finances. Perhaps you’d like to inspect a detailed breakdown of annual overhead expenses or scrutinize the salary of the incoming chief talent officer. Sadly, the executive committee is unlikely to share that kind of granular data with you or anyone else in the wider partnership. The reason is pretty simple: someone might have an opinion. Those in leadership have no desire to debate every line item in the budget or defend how much it costs to hire a top HR professional.
What you can review, in most cases, is financial information in the aggregate. You might have an opportunity, for instance, to review the number of hours that each practice group has billed over a 12-month period—concrete data that can shed light on the strengths and weaknesses of the business as a whole. But don’t assume that you’ll have access to the billing metrics of individual lawyers. Some firms keep those figures hidden, accessible only to a select few in leadership. Why maintain that level of secrecy? One reason is that, if a partner starts to underperform, management would rather handle the issue quietly. That’s a lot easier to do when no one else is aware of the problem.
In a sense, to join an equity partnership is to accept a series of trade-offs. You’ll have permission to review certain financial documents, but on some matters the leadership team will keep you in the dark. As we discussed above, you’ll probably make more money and gain newfound control over your practice—but you’ll have to navigate the awkwardness of the open compensation model and show fealty to a powerful executive committee. It’s rarely possible to enjoy the perks without suffering the downsides. In the end, you’ll have to decide whether you’re prepared to take that deal.
Daniel Fish is the editor of Precedent. Since joining the magazine more than a decade ago, he’s reported on dozens of topics, including the legal economy, mental health and partner compensation. In that time, he’s received several leading journalism awards for his long-form feature writing.
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Illustration by Melanie Lambrick.