Law firm partnership pt 2 –
choosing the right partnership for you
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Whilst many partners move firms at least once en route to partnership, changing firms is still a big decision, and ideally one you get right the first time. However, there are a number of different partnership structures to consider, each with their own advantages and drawbacks.
Since your path towards partnership is one you should chart early on, with a clear plan in mind, it is good to understand the different models at the outset. The ability to demonstrate a knowledge of how a firm operates will come in handy in the interview too.
The lockstep model is the traditional, most commonly used model for most UK and US firms. In this model, equity partners’ profit share increases in line with their seniority. In other words, all partners who joined in the same year will have the same profit share regardless of their performance, and will continue to track each other as the years pass.
A lockstep model is designed to reward loyalty, promote stability, and create greater transparency amongst staff. Arguably, it also promotes a more collegiate culture, where partners look to the firm’s best interests, rather than competing with each other.
However, the lockstep model allows for no link between performance and reward, as it assumes that performance and seniority go hand in hand. It consequently gives firms little flexibility in dealing with either underperformers or overperformers.
In recent years, and in particular after the financial crisis, many firms have been under commercial pressure to make their structure more performance-based. Many have responded to this by creating modified versions of the lockstep model, perhaps by adding an additional bonus system. There is a great deal of variation in how these models operate, but all seek to reward performance in some shape or form.
As more and more firms move to a modified lockstep model, the prospect of partners moving firms has also become less arduous. Since the lockstep model rewards long service, moving firms would inevitably lead to a new partner recruit starting at the bottom of the ladder, whilst high performers would need to bide their time before their compensation matched their output. However, with a performance-based system, or one that combines performance with longevity, firms have been able to poach high performers from their rivals, offering them improved terms.
Eat what you kill
Essentially the opposite of a lockstep structure, this model bases a lawyer’s pay solely on the revenue he or she brings in, calculated after the firm’s costs have been deducted.
The eat what you kill model obviously rewards high performers, and often attracts natural business winners. However, it doesn’t encourage referrals between staff, and will be detrimental to lawyers who wish to pursue management and training roles. This model is often criticised as too volatile and unstable.
Small or large?
In a smaller partnership, partners are one of a small number, and are essentially business owners with all that goes with it. Some smaller firms may also have a founding or senior lawyer with seniority over the others, which brings its own set of challenges. In a large, international firm, however, you may be one of hundreds of equity partners, which will be a very different experience.
The right model for you?
Which model you choose will impact on your experience as a junior as well. Often a firm’s culture is linked to their structure, and you will need to embrace the culture in order to progress within a firm. The structure may also impact on the quality of the training, and on how much work partners pass on.
In terms of pay, firms with a lockstep structure will often employ a similar structure for their salaried staff, whilst those with modified lockstep structures will operate a merit-based pay system. The modified lockstep models could potentially also offer associates a faster route to partnership, since they are better placed to recognise outstanding performance.
it is vital to fully understand the structure of the company that is offering you partnership, as this will have a direct impact on the access to equity.
Buy in, benefits & types of partnership
In a partnership you have to buy into the business, and pricing will vary greatly. First and foremost, the price needs to be viable to you. Firms often offer preferential loan rates or other payment structures, but ultimately, the contributions needs to be made one way or another.
It is also important to study how well the business has been performing in recent years, as this will impact on your salary as a partner. Does the company have debt? Do remember that you will be sharing in the gain and the pain in equal measure.
However, salary is only one piece of the puzzle, as other aspects such as benefits, flexibility with working practices, potential career paths, and training and development are also key differentiators.
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