Equity vs non-equity partner Forum

[TLSNYC]

I have been doing research on these and I am wondering what the difference is? Is one generally paid more, work longer hours, more secure in employment, etc? Is it better to choose one or the other (assuming you are at a firm with two separate tracks, i.e. non-equity partner at 5 years)

[LawIdiot86]

I have been doing research on these and I am wondering what the difference is? Is one generally paid more, work longer hours, more secure in employment, etc? Is it better to choose one or the other (assuming you are at a firm with two separate tracks, i.e. non-equity partner at 5 years)

Please tell me what research you have been doing? Your question indicates not only that you have done no research on this distinction, but that you also have no understanding of how a firm is structured.

[TLSNYC]

I have read through this: http://en.wikipedia.org/wiki/Equity_partner

But yeah, I seriously have no idea how firms are structured. I will gladly admit my ignorance.

[spleenworship]

tagged. not that I am likely to go biglaw, but I don't know crap about this and probably should.

[LawIdiot86]

Ok then. Equity partners are above non-equity partners. You don't get to pick between them. You're made a non-equity partner and then some years later, you're possibly made an equity partner. The jump from non-equity to equity is as big as the jump from associate to non-equity (1/10-1/20 make it). Usually an equity partner has a large book of business and is the relationship partner for a large client. Non-equity partners can be service partners who dedicate most of their time to overseeing engagements, doing legal work, etc. or can be people working their way up to equity partner. Equity partners own the firm and usually have to invest a certain amount. Their income is a share in-relation to their ownership state. Non-equity partners do not own the firm; they may have a claim to owning some of the profits or their salary may be (more often) set by the equity partners. Basically, a non-equity partner is like a junior partner. Neither has "more" job security because equity partners can be de-equitized and both can be demoted or fired by the rest of the equity partners, but equity partners probably have more overall security because of the greater difficulty in becoming an equity partner.

[TLSNYC]

Ok then. Equity partners are above non-equity partners. You don't get to pick between them. You're made a non-equity partner and then some years later, you're possibly made an equity partner. The jump from non-equity to equity is as big as the jump from associate to non-equity (1/10-1/20 make it). Usually an equity partner has a large book of business and is the relationship partner for a large client. Non-equity partners can be service partners who dedicate most of their time to overseeing engagements, doing legal work, etc. or can be people working their way up to equity partner. Equity partners own the firm and usually have to invest a certain amount. Their income is a share in-relation to their ownership state. Non-equity partners do not own the firm; they may have a claim to owning some of the profits or their salary may be (more often) set by the equity partners. Basically, a non-equity partner is like a junior partner. Neither has "more" job security because equity partners can be de-equitized and both can be demoted or fired by the rest of the equity partners, but equity partners probably have more overall security because of the greater difficulty in becoming an equity partner.

Thanks so much for this! It helps a lot!

[Wholigan]

Ok then. Equity partners are above non-equity partners. You don't get to pick between them. You're made a non-equity partner and then some years later, you're possibly made an equity partner. The jump from non-equity to equity is as big as the jump from associate to non-equity (1/10-1/20 make it). Usually an equity partner has a large book of business and is the relationship partner for a large client. Non-equity partners can be service partners who dedicate most of their time to overseeing engagements, doing legal work, etc. or can be people working their way up to equity partner. Equity partners own the firm and usually have to invest a certain amount. Their income is a share in-relation to their ownership state. Non-equity partners do not own the firm; they may have a claim to owning some of the profits or their salary may be (more often) set by the equity partners. Basically, a non-equity partner is like a junior partner. Neither has "more" job security because equity partners can be de-equitized and both can be demoted or fired by the rest of the equity partners, but equity partners probably have more overall security because of the greater difficulty in becoming an equity partner.

Thanks so much for this! It helps a lot!

Lawidiot's reply is quite accurate, but I will point out in addition that many firms do not have non-equity partners. In these firms, typically every partner will have to put in an investment. However, at these firms (and also among equity partners at firms which have two tiers) you should not assume that all partners are compensated the same just because they all own the firm. Generally there is a compensation committee, and junior partners will receive a lower percentage of the firm's profits in compensation than senior partners, who in turn will receive less than the biggest rainmaker partners.

[r6_philly]

Are there firms with parallel tracks, or are they necessarily sequential? How would the single track/multi track arrangement be factor into the firm selection calculus?

[Wholigan]

Are there firms with parallel tracks, or are they necessarily sequential? How would the single track/multi track arrangement be factor into the firm selection calculus?

I have never heard of two partner tracks. All of the firms that I know of have one partnership track which all associates are on, and only differ to the extent that they have one or two tiers of partners. At the two-tier firms, like lawidiot explained, they are sequential.

There are firms which have non-partnership track attorneys, which is different. These are generally not the kind of jobs you are hired for through OCI. They are more like permanent doc-review type positions. Some of the big firms have been experimenting with this type of position, which tend to be at outposts in midwestern cities.

I wouldn't really factor this into your decision too much. At the firms with a two-tier partner structure, it might be statistically easier to make non-equity partner, and at that point you wouldn't be in an up-and-out model any longer. So maybe that would appeal to you if you like a greater chance for stability at one firm. I got into a discussion about compensation at one firm where I had an offer, and the individual told me that non-equity partners make a little more than what the most senior associates make, and you don't automatically get yearly salary bumps any more, but the upside is you can pretty much stay as long as they still think you're valuable. It seemed to me like you were sort of still an associate at that point in all but name only.

[r6_philly]

Thanks for the info. What about fee sharing? I assume non-equity partners are billed out at a higher rate than senor associates, do they benefit from the bump in billing?

[Anonymous User]

Non-equity partners are typically salaried, like associates, so their pay is unaffected by how much business they bring in/how much they bill, other than possible bonuses.

It should be noted that there are also two models of equity partnership that may apply at firms with either one or two tiers of partner. In lockstep partnership firms, equity partners are paid solely based on their seniority. The more senior, the more money (until you're forced into retirement). In so-called eat-what-you-kill partnership firms, equity partners are paid based on their ability to be rainmakers, i.e., an amount proportionate to new clients brought in and hours billed to those clients. Generally, you can get very large disparities between equity partners in an eat-what-you-kill firm (where the rainmakers may be making 10-20x the lowest-paid equity partners), but the disparities between equity partners in lockstep firms tend to be small, with the most senior partners making maybe 3x the amount of the most junior partners.