The rise of the income partner

An investigation into a made-up job title
Name plate with the word "Partner" and a sticky note attached in front of the word which reads "Income"

Had you been a lawyer in the early 20th century, you would likely have worked in a small chambers. Perhaps you’d have been one of five associates in a firm with three partners and an assistant. Those partners literally ran the shop. They bought the tables, the chairs, the leather-bound volumes, the coal for the stove. As an associate, you were a kind of apprentice. In time, you’d be asked to buy in and become a partner, too. Or you’d get the boot and have to make it on your own. 

Throughout the broader business world, traditional models—like joint partnerships and family-run shops—have largely been displaced by modern corporations, with shareholders, boards of directors and executives. But law firms, despite having ballooned in size and complexity, are still structured in the same way: with partners who buy into the business and associates who work tirelessly to make those partners money. 

Firms have stuck with this antiquated model in part because they have no choice. In Canada and most of the United States, only lawyers can legally hold equity in a law firm, which means that, to raise capital, a firm cannot bring in outside investors or sell shares, as a corporation might. Instead, it must do the same thing it did a century ago: admit more partners and have them make a capital contribution. 

There are also cultural factors behind the profession’s devotion to the partnership model. “Lawyers want to be able to tell their parents, their friends and the people they’re jealous of, ‘I’m a partner now!’” says Jordan Furlong, a legal-sector analyst who runs the consultancy Law21 and has written extensively about the evolution of the private-practice business model. “The word partner has a lot of status.” 

And yet, traditional partnership has come with its fair share of challenges. By the 1980s, the largest law firms had turned into enormous enterprises, with hundreds of lawyers on the payroll. It had made sense for an eight-person shop to have three owners, but an 800-person shop with 300 owners all trying to run the show is a recipe for disaster. Such a massive team of decision-makers cannot possibly make coherent choices. No functional army would have a similar ratio of generals to foot soldiers. 

At most law firms, authority became concentrated in the hands of a small managerial team, such as an executive committee, that excluded the majority of partners. The road to partnership got longer, too, in part so that firms had more time to vet lawyers for the mighty responsibility of ownership. Back in the ’80s, explains Furlong, a talented associate could expect to make equity partner after six years; today, that number is closer to 12. 

Unsurprisingly, many associates disliked this change. By the 1990s, says Norman Bacal—a legal consultant, author and the former managing partner of Heenan Blaikie LLP, one of the largest firms in Canada before it dissolved in 2014—this aversion to adding owners caused retention problems at the biggest firms. Smaller firms, after all, could poach talented associates with the promise of a faster track to partnership. “Imagine that your friend, who works at a mid-sized firm, just made partner after seven years,” says Bacal. “But you’re at a large firm that’s saying you have to wait 10 or 12 years. You then have to tell your peers that, for some reason, you’re still not a partner. That’s embarrassing.” 

Around this time, North American firms introduced a compromise: partnership without ownership—or, to use the technical term, income partnership. The invention seemed like a win-win. Status-conscious associates would now get to call themselves partners and, often, take home a tidy raise. And law firms wouldn’t have to worry quite so much about attrition among the junior ranks. 

By most accounts, the compromise worked. One paper, published by the North Carolina Law Review in the mid-aughts, found that associates with an income partnership option were more committed to building a long-term career at their current firm than those working in an equity-only model. The article put forward a range of potential explanations. Income partnership, it posited, might “be attractive to talented lawyers who want the title of partner but may lack the ability or desire to engage in business development.” Ultimately, the paper argued that “the primary economic benefit” of offering income partnership was stability: associates would be less likely to leave. 

Of course, the story is a bit more complicated. For one thing, income partners are sometimes surprised to learn how little has changed after earning the promotion. Some associates, meanwhile, accept the position of income partner with an implicit understanding that a promotion to equity partner will soon be forthcoming, only to find themselves languishing in professional purgatory. The title itself is also a kind of contrivance. “In the past, I’ve referred to income partners as superannuated associates,” says Furlong. “They are borrowing the title of partner.” 

Despite those drawbacks, the position was created in response to a particular set of historical pressures that the profession can’t ignore. How, then, should we feel about income partnership today? 

Name plate which reads: "Partner*"

One answer—which is by no means definitive—is that we should feel just fine. Most big law firms in Canada have adopted some version of the model. Small and medium-sized shops have, too. If firms are regularly offering these positions, and if associates are regularly accepting them, they surely have their reasons for doing so. 

Blair McCreadie, the managing partner at the Toronto office of Dentons Canada LLP, argues that the model gives lawyers flexibility. Equity partnership comes with serious pressures, including an ongoing expectation to originate new business. In the past, lawyers who weren’t ready for those pressures would often leave for an in-house position. Income partnership allows them to remain at the firm. “In a world where the number of high-calibre in-house roles is expanding,” says McCreadie, “the income partnership option is necessary for talent retention.” (Income partners at Dentons don’t hold an ownership stake, but their compensation is partly tied to the firm’s financial performance.) 

Indeed, income partnership can offer a bridge to equity partnership. In many instances, explains McCreadie, an abrupt transition from associate to equity partner can be destabilizing. “Income partners are often in the process of ramping up,” he says. “They’re building their practice. They’re building their books of business.” The position enables them to learn the ropes without the pressure to be a consummate manager and rainmaker from day one. 

For Pamela Chan Ebejer, a Dentons income partner, the position affords an opportunity to reimagine her practice. As an associate, Chan Ebejer was a labour-and employment-law generalist, but she had an interest in pensions. She hopes to carve out a niche helping employers that sponsor pension plans navigate the regulatory environment. But this area of law is highly technical, and it requires a great deal of esoteric expertise. 

The income partnership position, she says, gives her the space to make the transition. She can shed parts of her former practice and put time into the kinds of endeavours—blogs, public talks, conference papers—that bolster her professional reputation. “Having the title of partner gives me the credibility to build this practice into something greater and bigger,” she says. “But I can do it gradually, because there isn’t an expectation that I’m fully formed.” The position, for Chan Ebejer, is a kind of safe zone, a place for experimentation and growth. 

Name plate with the word "Partner" and a sticky note attached in front of the word which reads "Income"

That safe zone, however, can come with its own unique dangers. Income partnership can contribute, for instance, to false expectations that undermine morale. Consider the case of Julie. When she made income partner at her big law firm, she was surprised to find that her life remained mostly unchanged. (“Julie” is a pseudonym. To protect her identity, both her name and the name of the firm where she worked have been withheld.) She still had the same clients. She still took instructions from the same cadre of bosses. She still felt peripheral to the centres of power at her firm. 

Julie wasn’t naïve. She knew that, as an income partner, she wouldn’t be voting on major decisions or electing the management team. Still, she thought she’d at least have a seat at the table. She imagined that partner meetings would be like parliamentary sessions, where ideas are discussed openly and everyone’s opinion counts. In reality, they were more like pep rallies. Senior management announced new policies, and income partners were expected to nod along. “The meetings were informational,” says Julie. “There wasn’t much consultation or debate. My role was to be a cheerleader for decisions that had already been made.” 

Sometimes, those decisions were drastic. Shortly after Julie’s promotion, the pandemic hit, and the firm announced a series of sudden moves: layoffs, salary cuts, changes to the operational structure. The logic behind these decisions often eluded Julie. The firm cut valuable team members while allowing less-productive employees to stay on. They slashed the size of a key practice group just as it was revving up for a major court date. “People would be let go,” says Julie, “and I’d think, Shit, that’s not the person I would’ve picked.” 

Then again, nobody had asked her. Often, Julie and her fellow income partners were apprised of major decisions the night before a firm-wide announcement. 

Julie had always aspired to be a changemaker, a person who takes on the boys’ club and pushes for greater equity at the firm. But after being admitted to the partnership circle, she realized that it contained a series of smaller circles from which she was still excluded. “As an income partner,” she says, “you’re not in the room where changes are discussed.” 

Meanwhile, her female colleagues had started referring to income partnership as a “pink ghetto,” a place where women languished, even as their male colleagues moved up to ownership and eventually management. This concern is widespread. The income partnership model has come under regular attack for enabling law firms to juice their diversity numbers by promoting women and racialized people to partner but not in a way that truly counts. 

Ronit Dinovitzer, a professor of sociology at the University of Toronto, says that the scope of this problem in Canada is difficult to measure. Domestic firms, she points out, tend to be secretive about partnership data. But her research from the United States is hardly encouraging. “It’s clear, when you look at the large American firms,” she says, “that the equity partners are still the white men, and the non-equity partners are overrepresenting racialized lawyers and women.” Given the overall equity gap inside Canadian law firms—where white and male lawyers are more than twice as likely to have made partner, of any kind, as their racialized or female peers—it’s hard to imagine that the situation here is wildly different. 

Even those in management have seen downsides to income partnership. In 2016, when Michael Slan took over as the managing partner of Fogler, Rubinoff LLP, which is home to about 120 lawyers, he worried that income partners, unable to enjoy a percentage of overall profits, have little incentive to contribute to the broader well-being of the firm. Performance numbers, such as billings and client originations, determine the size of their year-end bonus. What Slan calls “firm-minded behaviours”—sharing resources with colleagues, mentoring associates, contributing to CPD—generally have no bearing on an income partner’s pay. 

Slan saw that as a potential problem. The firm started to ask both income and equity partners to complete an annual self-assessment, reflecting on how they support the organization as a whole. The idea is to nudge partners in the direction of firm-minded behaviours. 

Foglers also adjusted its approach to recruitment. In recent years, as the firm’s income partners have either graduated to ownership or moved elsewhere, Slan has been reticent to replenish their ranks too eagerly. When Foglers does bring on new income partners, it seeks out people who have a track record of collaboration and thinking beyond the needs of their individual practices; an impressive book of business isn’t enough on its own. And the firm tries to swiftly transition income partners to equity status, at which point softer skills like mentorship play a more concrete role in compensation. These reforms have had a clear impact. “Over the last decade,” says Slan, “we’ve reduced the number of income partners by half.” 

Income partnership might not be an unalloyed good, but the model is here to stay. The salient question, therefore, is this: how can it be deployed honestly? Counterintuitively, the best approach may require adding more intermediary steps between associate and equity partner, rather than fewer. Such a model can offer much-needed clarity—a clear path to ownership, with signposts along the way. 

WeirFoulds LLP has adopted such a philosophy. According to Paul Wilson, the chief operating officer, the firm wants a strong base of entrepreneurial equity partners working hard to grow the business. “At many firms, income partners stay at that level for long periods of time, which is not what we want,” says Wilson. “We want people in our partnership thriving and making us successful.” 

Four years ago, WeirFoulds introduced a three-tiered partnership model. At year five or six, associates who are showing true potential are promoted to income partner—a salaried position, with a degree of income variability. Once they’ve met key benchmarks in terms of business development, they’re promoted to supported partner, at which point they hold a small equity stake. During both stages, lawyers can request, or the firm might assign, tailored business-development training and external coaching. They are told from the outset that the goal is to move them briskly to the equity level. Each transitional step should last two or three years. 

This approach, which treats intermediary partnership as a time-limited program with an imminent graduation date, ensures that people don’t become stagnant. As of early September, of the firm’s 110 lawyers, 33 were equity partners, three were supported partners, 16 were income partners and 58 were associates. “We want the process to be structured and speedy,” says Wilson. “Our approach doesn’t allow us to have people languishing.” 

Loopstra Nixon LLP, a Toronto firm with just over 100 lawyers, has devised a similar partnership track. The firm breaks down its path to partnership into two steps: salaried partner, an apprenticeship phase, wherein people are paid a salary plus a bonus; and income partner, wherein people make variable incomes based on the profitability of their individual practices. Equity partners get paid the usual way, with a share of the firm’s annual take. 

In each of the two initial stages, partners are given detailed metrics outlining what they must achieve—in terms of business development, origination and profitability—to graduate to the next level. Salaried and income partners meet annually with a member of the management team to discuss their progress. Compensation for all partners, including equity partners, is determined not via closed-door meetings but via an algorithm that’s available to the entire partnership. 

“We wanted to break down the career path for a young lawyer into its component parts,” says Allan Ritchie, the firm’s managing partner. “There’s no mystery. We offer our junior lawyers a series of clear incremental goals as they move toward ownership.” (As of early September, the firm had 19 equity partners, 31 income partners, nine salaried partners and 47 associates.) 

Junior partnership is, primarily, the firm’s way of acknowledging a given lawyer’s competence. “We want to recognize people as partners when their legal skillset warrants it,” explains Ritchie. “We’re honouring a milestone in their career development.” 

The firm’s approach, Ritchie argues, enables a degree of clarity. Loopstra Nixon, with its algorithmic compensation schemes and tiered partnership model, is working to be as transparent as possible about what lawyers can do to move up the ranks.

There’s no denying that the income partner model makes a kind of business sense. Still, if firms are going to use it, they should at least deploy it well. Transparency is key. Firm managers must communicate thoughtfully with their employees. The advancement process may be difficult, but it needn’t be opaque. 

At a minimum, everybody at the income partnership level should know what comes next. “At Heenan Blaikie,” says Bacal, “I would sit down with my lawyers when they hit their five years and ask, ‘Do you want to become an equity partner?’ If the answer was yes, I’d say, ‘Here’s what you need to do. Are you prepared to do it?’” No matter how firms try to soften the truth, equity partnership is about generating revenue. Bacal would tell lawyers how much business they would have to bring in and the hours they’d need to work. “Some associates would then leave the practice. But at least we’d had an honest discussion.” 

If managers need to be candid with income partners, income partners need to be candid with themselves. The partner title may be a useful pretense—it’s helpful to introduce yourself to prospective clients as a partner—but it’s a pretense nevertheless, resting, as it does, on an elastic definition of the word partner. Income partners will always have limited managerial influence. People who decide to climb the rungs should expect a lengthy journey. And they should be honest with themselves about what they’re getting into. 

Income partnership simply isn’t for everyone. Shortly after making income partner at her law firm, Julie realized that, if she stayed, she would likely never enjoy the kind of influence she craved. A place in the inner circle seemed perpetually out of reach. So she decided to strike out on her own. While planning her new business, she found herself working through questions she hadn’t contemplated before: Who would her firm work with? (The answer: many of her former clients, but not the annoying ones.) Would she pay for luxurious offices? (She invested in human capital instead.) Each decision was hers and hers alone, and she relished her new-found freedom. Julie had traded in Big Law prestige for scrappy autonomy, and the deal felt right to her. She opened shop in the spring of 2021. She made equity partner that same day. 

This story is from our Fall 2023 Issue.

Photography by Vicky Lam