In 2023, it was reported that Cravath, a renowned defender of the traditional partnership structure, was stepping into a two-tiered system, an approach that other significant law firms such as Paul Weiss have suggested they may also adopt. This move is seen in part as an answer to many senior associates becoming more precarious in Biglaw because of the aging partnership ranks. It has led to a noticeable increase in the number of non-equity partners across firms. For instance, there were 19,289 non-equity partners in the fiscal year 2012, whereas their total number rose to 26,888 in fiscal year 2022 according to Thomson Reuters’ analysis.
Yet the full effect of this shift on the pay structure for equity partners is not entirely known. While equity partner compensation has been rising alongside net profits, the implications of non-equity partners – who focus more on servicing than generating work – remain to be fully understood. These partners entail fixed costs that are incorporated in the firm’s overall expenses. As an illustration, the average yearly compensation for an equity partner rose from $1,513,442.26 in 2012 to $2,079,240 in 2022.
The opaque nature of law firm partner compensation models is often a focus of intrigue, with prospective partners eyeing not only a strong work culture and stable firm finances, but also sound compensation. To offer a sense of marketplace valuation, equation variables such as origination and working credits are key factors. In cases where the compensation structure of a firm negatively impacts your business worth, you can find yourself undervalued.
Shifting partnership structures and the enigmatic nature of compensation models provide a daunting task for approximating the worth of a business in the open market. This reality is accentuated when one considers that while some firms evidently outperform others in equity partner compensation at every origination value, there is little consistency in compensation models. With this uncertainty in mind, it is beneficial to seek out a veteran legal recruiter to assist in securing the best deal.
This article is, in part, covering the challenges of calculating the worth of a law business in an era of shifting partnerships and mystifying compensation formulas. For a detailed exploration of this topic, you can read the full post here.