The median profits per partner figure at America’s 100 top-grossing law firms in 2003 was $792,500, up almost 9.3 percent from 2002. The average was even more astonishing: $930,700, up about 10 percent. Ten years ago, million-dollar partner paydays were limited to two or three firms. No more.
Thirty-two of the firms on this year’s chart enjoyed average profits per partner of $1 million or more, and they aren’t just the usual New York and Los Angeles suspects. Bingham McCutchen, Dechert, and Howrey Simon Arnold & White were all over $1 million for the first time, each with profitability jumps of 14 percent or more. Partnership was very, very good to a lot of big-firm lawyers in 2003.
But here’s the catch. Partnership-equity partnership, in which a lawyer is a full voting member of a firm, with an ownership interest and a hefty share of profits-is an increasingly elusive prize. Just 23 Am Law 100 firms have only one partnership tier, compared to 55 in 1994, the year we first began tracking nonequity partnership. The average number of nonequity partners at Am Law 100 firms increased to 65 this year, up almost 11 percent from 2002. The average number of equity partners, by contrast, grew only 4 percent. There are now seven firms on the Am Law 100 chart with more nonequity partners than equity partners. (They are Bingham, with 60 percent nonequity partners; Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, 57.5 percent; Kirkland & Ellis, 54.5 percent; Pillsbury Winthrop, 53.3 percent; Shook, Hardy & Bacon, 52.3 percent; Winston & Strawn, 51.5 percent; and Foley & Lardner, 50.5 percent.)
Those wonderful profits per partner, in other words, are coming, in the aggregate, at the expense of partners who aren’t truly owners of their firms. In the category of average compensation to all partners, equity and nonequity, the average is $825,500-still a pretty nice number, but 13 percent less than the average profits per partner, and skewed by the single partnership tier of the most profitable New York firms. The median compensation for all partners in 2003 was $792,500, 17 percent less than the median profits per partner. At 31 Am Law 100 firms, the average profits per partner figure was more than 25 percent higher than compensation for all partners in 2003.
The disparity is even wider when you compare profits per partner not to the average compensation of all partners, which includes the shares of equity partners, but just to the average nonequity partner compensation. Look at Bingham McCutchen, for example. Bingham’s 100 equity partners averaged $1.06 million in profits. Bingham’s 150 nonequity partners-partners who, under the definition The Am Law 100 uses to define nonequity partners, derive less than 50 percent of their compensation from the profits of the firm-averaged $430,000. That’s 50 percent more people making 147 percent less money. At Kirkland & Ellis the difference is even more dramatic. That firm’s 157 equity partners averaged an eye-popping $1.9 million last year. The 188 nonequity partners? They get an average $400,000-and no guarantee of ever moving up into the equity partner ranks.
What the mere numbers don’t show is the increasing diversity of partnership models within The Am Law 100. Firms like Cravath, Swaine & Moore and Debevoise & Plimpton, with ingrained ideas about collegiality and democracy, stand at one extreme. Compensation is lockstep by seniority. Partnerships are relatively small-77 at Cravath in 2003, 119 at Debevoise-and close-knit. At Debevoise the weekly partner lunch, part business meeting but mostly a social occasion, remains a fixture of firm life. Leverage at both firms is high-5.7 at Cravath and 4.5 at Debevoise in 2003-and the partnership track is usually nine or ten years long. Most associates will never make it. But once they do, they’re set.
Kirkland is at the other extreme. Lawyers can be elected to the nonequity tier, which Kirkland calls income partnership, after six years. But there’s no pretense that they are true partners. Aside from their drastically lower compensation, income partners have limited voting rights, with no voice in such matters as amendments to the partnership agreement, lease arrangements, or compensation and partner selection. Elevation to the full partnership is a matter of tenure and merit.
Most new Kirkland income partners will have to wait another four years before becoming equity partners-if they ever make it. Income partners undergo rigorous evaluations in which they’re rated against their classmates. Those who are told they’re at the bottom of the class usually leave the firm. (Kirkland does have some permanent income partners, but they’re usually in specialty areas.) Kirkland has always had more income partners than equity partners, and makes no apologies for it.