Some firms have had successful nonequity partner tiers for years, while other previously single-tier firms are introducing new two- tiered structures. Some patterns associated with successful two- tiered firms have emerged in recent years.
Compensation is always a driving factor in overall partner satisfaction. As firms continue to evaluate their partner compensation with various levels of partners in mind,[1] the data is clear from Major Lindsey & Africa's 2024 partner compensation survey: Equity partners' average compensation, billable hours and client originations significantly outstrip those of nonequity partners.
Notably, a higher percentage — 32% — of nonequity partners had negative responses when asked if they were satisfied with their compensation — compared to 16% of equity partners.
However, the numbers do not paint the full picture. When it comes to keeping nonequity partners happy, it is not just about the base compensation. There are many ways firms successfully keep them engaged.
Clear Communication on Criteria for Advancement
The promotion to partner for many lawyers means joining the nonequity tier and is a cause of celebration. While this is a great step forward, nonequity partners often want to understand how they move forward to the real goal — equity.
Fostering business development, contributing to the firm, ensuring timely collections of billed hours, growing existing firm relationships, bringing new clients to the firm and doing top quality work are often some of the key metrics that firms weigh when deciding promotions.
But what should a nonequity partner focus on most? Can they make equity through growing relationships of existing clients, or should they concentrate their efforts on developing new relationships? Is new business more heavily weighted in the decision process than billing hours on existing matters? The answer to these questions differs from firm to firm, and even among practice groups and offices.
Fairness and transparency are two important factors for firms to maintain a successful nonequity partnership tier. What matters most is that those working toward the goal of equity partnership understand where they stand, and what they need to do to move forward.
Clear communication on origination goals and explaining how the credit system works is critical to making people understand how their contribution is measured, so they can tailor their efforts accordingly.
Compensation — Bonus Pools and Participation in Success
Firms that are hesitant to make big increases or decreases in base compensation for their nonequity partners still have tools available to them to ensure nonequity partners feel fairly compensated.Many firms reserve a bonus pool for nonequity partners who have standout years. Ideally, nonequity partners know that if they have a stellar year, the firm will take notice and not leave them feeling like their additional contribution was effectively a pro bono effort that merely increases the payout for the equity partners.
Some firms even share the percentage of revenue they set aside for this purpose — rewarding exceptional performance — and share that information with prospective nonequity lateral candidates to let them know that there is money set aside for when they beat projections, not just in the first year or two, but also in the long term.
These strategies help reinforce the two-tiered structure by incentivizing nonequity partners to perform at a high level, while also recognizing and rewarding equity partners' long-term commitment, and ultimately supporting the firm's growth. This is an important part of retaining nonequity partners who are successful.
Another strategy to consider is a firm performance-based payout. Nonequity partners by definition don't receive as much in firm profits as equity partners, but a bonus based on firm performance keeps people tied to firms that are doing well and makes them care about the firm outside their own practice.
The Importance of Showing Respect to Nonequity Partners
When prospective laterals are looking at a nonequity offer, they are more inclined to accept if the partnership structure works as one, cohesive system.
Internally, that means that there are not separate retreats for equity partners and nonequity partners. And it means nonequity partners are included in important firm decision-making and can achieve positions of leadership.
To that end, two-tier compensation models do not need to translate into two tiers of firm involvement. Firms that include nonequity partners in their partnership meetings and overall decision-making can create the feeling of one partnership, even with two tiers.
While nonequity and equity partners share many traits, nonequity partners generally have smaller levels of responsibility for firm management. Major Lindsey & Africa's 2023 law firm culture survey indicated that 32% of partners wanted more transparency into compensation and other important decisions.
Voting rights and knowledge about firm financials are important parts of being a law firm partner. While the way firms do this varies, it is extremely helpful to distinguish nonequity partners from associates and counsel — unless the firm is completely open at all levels. Firms that give one vote for one partner, regardless of their equity status, create a culture of one partnership.
At some firms, even partners do not know who among their ranks are equity and who are nonequity. While some on the compensation committee and other leadership positions have this information, it is not shared, leading to more equal treatment among the partners. Externally, this helps the nonequity partners by allowing them to be seen as equals and enhances their credibility as they develop business and matters with other counsel.
Access to Resources
Additionally, partners need support for their practices. Giving them access to good associates, marketing teams and other resources is important. While it is reasonable that those with larger practices take more of these resources, nonequity partners don't want to feel they always get the leftovers.
Conclusion
Firms that have successfully managed two-tiered partnership do so by creating a culture that treats everyone like partners and by creating financial incentives outside their base compensation to reward performance. A creative, thoughtful approach that values the needs of both nonequity and equity partners is one that can reap significant benefits for the firm's overall performance.
