When it comes to earning top dollar as a lawyer, nothing beats the earning potential of an equity partner. Astoundingly, the highest-earning equity partners in the most successful law firms make a million a year or more.
Becoming a partner has alluring benefits - and the sky-high salary is one of them. The exact amount partners at big law firms make depends on the type of partner they are and the compensation package they accepted.
Types of Partners
The highest-earning type of partner in a big law firm is the equity partner. What does that mean? How much do the other partners at big law firms make?
There are two types of law partners - equity and non-equity. Both types earn income in different ways and are responsible for different parts of the business.
Equity Partner
Equity partners share ownership of the law firm. Some firms require equity partners to “buy-in” to the firm with a monetary investment. They have the highest salaries in the firm but their job also carries the most risk.
As the owners of the firm, they handle the brunt of the public relations issues that might arise. It’s also possible for equity partners to be moved back down to a lower level if they don’t bill enough hours to maintain their position.
Equity partners also have a say, or a vote, in the hiring and firing of staff and associates. Together, the equity partners decide which clients to represent, and which people to elect as future equity partners.
Income Partner
Income partners are also called “non-equity partners.” They are talented lawyers with the ability to contribute financial success to the firm but don’t share in the profits or the liability.
Income partners do not invest any capital into the firm. They are also not liable for anything like the office lease or client relationships. These partners usually have a guaranteed salary that isn’t dependent on the success of the firm.
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What It Means to “Buy-in” As Equity Partner
To own part of the law firm, a new equity partner must purchase an equity stake in the firm.
There isn’t a typical buy-in amount that all law firms use. A new partner buy-in amount depends on a lot of different factors, including:
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The type of compensation partners have
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The size of the firm compared to the number of equity partners
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How much capital the firm has
Buy-in amounts are not public records, but according to JD Supra, they can often be so high that some firms offer loans to upcoming partners so they can cover the cost.
Part of buying in is to agree to a buy-out plan as well. This plans ahead for any situation in which the equity partner is demoted. Their shares in the company are usually distributed to the remaining equity partners and their salary is renegotiated.
Types of Compensation for Partners at Big Law Firms
Just like there are different salary amounts for equity partners, there are also different methods of paying those salaries. Equity partners don’t always earn a straight salary. Some earn compensation in the form of profit-sharing and other models.
These are the most common types of compensation for patterns at big law firms.
Incentive Compensation
Incentive pay is formulated based on the partner’s ability to meet previously set key performance indicators or KPIs.
What are KPIs? They are basically performance goals. For example, how many new clients a partner onboards per year, how much revenue they generate for the firm, or how many clients are retained.
Basically, with this type of compensation, the partners are actively incentivized to meet or exceed the goals of the firm. If they do, their income will increase.
Salaries
Some law firms set an annual salary for their equity partners. It’s not unheard of for them to base these amounts on their revenue.
Other times, an annual salary is paid out in conjunction with one of the other compensation models in this list.
Lockstep Model
This is a way of rewarding equity partners for maintaining their status as partners by increasing compensation each year that they remain. It follows the same thought process as tenure.
Instead of paying more to high-performing equity partners, all partners are paid the same amount. The only way to earn more is to be an equity partner for a longer amount of time. Income increases each year.
This model encourages trust and transparency within the equity partners since the compensation increases are clear and reliable.
Eat What You Kill Model
It might have a funny name, but the eat what you kill compensation model is used by lots of types of firms, not just law firms.
It’s a type of incentive-based model that rewards an equity partner based on the revenue they brought to the firm.
In other words, if an equity partner landed a large client and brought millions to the firm, their compensation will be higher than the partner that only brought in $500,000 revenue that year.
This is very similar to commission-based salaries in other fields, such as sales. It’s a highly debated compensation model that many firms are veering away from.
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How much do partners at big law firms make?
Thanks to a recent survey by the renowned legal search firm Major, Lindsey & Africa, we have a pretty clear idea of how much equity partners at big law firms make.
The average compensation for equity partners is $1.39 million per year. Non-equity partners earn about half that amount, with an average yearly salary of $432,000.
Pay Gap Is Narrowing
There is still an unfortunate pay gap between male and female equity partners, but there are signs that this gap is narrowing.
Male equity partners earned an average of $1.13 million per year in 2019. Comparatively, female partners only earned an average of $784,000 per year. The good news is that those female partners had a faster growth rate in their income - 15% compared to just a 7% compensation growth rate for male partners.
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