By Brandon Lowrey | October 1, 2024
Nonequity partners make up one of the fastest-growing tiers of lawyers at major law firms — and that tier is the most discontented, according to Law360 Pulse's 2024 Law Firm Compensation Survey.
Some 38% of nonequity partners have reported dissatisfaction with their pay, more than either associates or equity partners. They are also more likely to report that their compensation is not transparent. But many law firms are adding more lawyers to this most-discontented tier.
Legal industry experts told Law360 Pulse that they have noticed discontent among nonequity partners, and it is not unfounded.
At some firms, the nonequity tier can be a bleak and opaque place that feels difficult or impossible to escape. Many law firms are also squeezing nonequity partners' salaries, experts said.
"Here's what's going on: A lot of firms are really bumping up what they are paying their top partners in order to compete for the best talent and the best client relationships and all of that," said Lauren Drake, a partner at legal recruiter Macrae.
When a firm needs to find money to give to a top performer, cutting associate pay won't do; junior associates' salaries are often publicized and lockstepped. This might make the nonequity partner tier seem to be the most convenient place to skimp or cut at many firms, Drake said.
"The spread between equity and nonequity partner is growing," she said. "I'm guessing that 38% are at firms where there are certain people being extremely highly compensated, and then nonequity partner compensation has not kept up with those massive increases at the equity level."
In addition, Drake said, some of the biggest firms are raising the bar for becoming an equity partner. This has prompted a growing number of equity partners to look elsewhere for more opportunities, whether it's a lateral move with better odds or a promotion.
"We're hearing from people who are mad," she said, adding that "they are feeling like they are undervalued and being underpaid" in order for firms to lavish generous compensation on top equity partners. "And in some instances, it's absolutely true."
Drake said that she has seen partners from major firms being paid less than 25% of the equivalent of their books of business.
Still, law firms have been expanding their nonequity partner headcounts for years, a recent Citi Global survey found. The trend was particularly pronounced among the largest 50 firms, where the nonequity partner headcount rose at a significantly higher rate than that of the overall partner headcount in recent years.
Those with a desire to move up into the ranks of equity partners might not find it easy, thanks to firm leaderships' rising standards and difficult-to-change perceptions.
A lateral move to a different firm might create new opportunities for advancement for nonequity partners who feel stuck. However, it is uncommon for nonequity partners to be promoted by way of a lateral move, said Jennifer Henderson, co-founder of legal search firm Hatch Henderson Fivel.
She said that when this does happen, it is most often because a thriving nonequity partner has built a good book of business but simply has not been recognized quickly enough by their own firm. It can also happen when a nonequity partner moves to a less-prestigious firm or their practice meets a strategic need at a different firm, which is actively recruiting for it.
Paul Weiss Rifkind Wharton & Garrison LLP announced this year that it is following a new two-track partnership compensation model to retain its star partners and associates.
Brad Karp, the firm's chairman, said in a July podcast that associates with eight years of experience at the firm either become an equity partner, or, if they do not qualify, become a nonequity partner — a designation that would be reassessed after a few years. He said the move was spurred in part by a significant loss of talent recently.
"A number of our peers will circle our talented senior associates and say, 'I will make you a partner next year or now.' And we couldn't match that. We just couldn't. So we lost a lot of talent," he said in a July appearance on the "Law, disrupted" podcast.
Kathryn Richardson, founder of Texas-based HR Legal Search, said being a nonequity partner has its advantages, as well as limitations. Nonequity partners have predictable salaries and the tax advantages of being a W-2 employee, and sometimes better benefits.
But their salaries can be flexible in ways that associates' and equity partners' usually aren't. Richardson said she has seen cases at large firms where nonequity partners were paid less than associates, thanks to associate pay booms in recent years.
"It's easier to pay a nonequity partner under-market and get away with it," she said. "If nonequity partners are moving, it's kind of — I hate to say, like, 'don't let the door hit you on the way out,' but not a lot of tears are shed."
–Additional reporting by Aebra Coe, Matt Perez and Xiumei Dong. Editing by Pamela Wilkinson and John Campbell.
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