So They Offered You Non-Equity Partner …

You are a partner at a law firm and have decided that it’s a good time to make a move. Perhaps you are an equity partner at one firm and have just been offered a position at another firm, your dream firm—but as a non-equity partner. Or, maybe you are a non-equity partner at your current firm or coming from government and really want to make your next move to a firm where you will reach equity partnership. While that offer may feel like a step back and may seem discouraging at first, it is becoming more and more common in today’s lateral market for lateral partner candidates to enter their new firms as non-equity partners even when those candidates are moving from one firm to another with a portable book of business.

As legal recruiters, we regularly see very strong candidates who in the past would expect equity offers, including government lawyers and law firm equity partners, receive offers for non-equity partnership positions. Many firms are choosing to do more and more due diligence before bringing on lateral partners. This move toward making non-equity partnership offers is part of that trend because it puts the firm at less risk in bringing on the new partner.

So, if you are in the market to make a move, it helps to be aware of this trend. If the new firm provides a strong platform and is a strong fit for you, then you should understand that the offer of non-equity partner is likely less about you and is more likely part of an overall growing trend. Given that non-equity offers for laterals are becoming the norm, you should be prepared for this wrinkle and consider other aspects of the offer (e.g., platform, compensation) when determining if it’s the right opportunity to take.

To properly evaluate an offer as a nonequity partner, it is therefore helpful to get the answers to a number of questions.

Understand the Firm Structure

Regardless of whether you are a partner or an associate, one of the most important aspects of any law firm that you need to understand before joining is the firm structure. Knowing how the firm is set up and how the firm supports its lawyers will help you decide if it’s a place you could call home and one at which you could positively contribute to the bottom line. Find out:

• What is the structure of the partnership?
• What is the current makeup of equity and non-equity partners in the firm and in your practice group? Are there plans to change this balance in the future?
• Does the firm have permanent income partners or fixed-share partners?
• Are income partners treated as employees of the firm and offered employee benefits (health insurance, 401(k), etc.)?
• Is there any capital contribution for income partners? What is the current capital contribution for equity partners?
• What is the breakdown of women and minorities at the firm? How are they represented in the non-equity and equity partnership ranks? If these numbers are not good, what is the firm doing to make improvement?

Find Out How Compensation Is Determined

Most law firms look to the same data to determine compensation but each has a unique way of weighting those criteria, including book of business, billings, and cross-selling. Depending on who you are and your particular strengths, different systems might have different results for you. Before making any move, get as much information as you can on the system at the firm and understand if this system will change if/when you become an equity partner. Ask these questions:

• How is compensation determined for income partners and how often is it reviewed? Are there particular metrics that are used (e.g., billable hour thresholds/requirements, originations, shared credit on matters)?
• As a general matter, do income partners receive bonuses and, if so, how is this determined?
• Is there an upper limit or cap for income partner compensation and, if so, is that before or after any potential bonus eligibility?
• Do non-equity partners see any bonus based on firm performance?
• Do partners share credit on matters? If so, how does this work? Can income partners be billing partners on matters?

Ask What Needs to Happen to Make Equity Partner

Firms often have guidelines that can be described as a mix of objective and subjective criteria when it comes to becoming an equity partner. You will want to gain a strong understanding of how these factors are interpreted in your office, in your practice area, and in the firm overall. Uncover the following:

• Is there a general expectation with respect to income partners and the path to equity partnership (e.g., length of time before eligible for promotion to equity)?
• Is there a hard rule regarding book of business before someone can be evaluated for equity partnership? Is a profitability evaluation performed on this calculation?
• Is there a maximum amount of time someone can spend as income partner before “up or out” kicks in (e.g., metrics regarding originated revenue, etc.)?
• Is there a cultural expectation to becoming an equity partner? Does the firm have non-equity partners who meet objective measurements but who are not equity partners because of other reasons? If so, what are those reasons?

When receiving an offer from a new firm, your focus should be on whether the firm is a place where you will thrive and progress versus having a higher-grade title that you feel you deserve when you walk in the door. By doing your own due diligence and finding out everything you can about the structure and the culture of the firm, you will be able to make a better decision for your career path, and you will end up making a move that will benefit you in the long run.

This article was originally featured on Of Counsel February, 2018.