Where’s ’my Equity, Dude, Part 2
By David Bargman, Esq.
Many big law firms have taken off their masks, so to speak. The nonequity partner tier mushroomed starting in the second half of 2020 many, mostly Big Law, while far fewer firms shrank their nonequity tier. Meanwhile, the equity partner ranks at many big firms kept flat or contracted, despite upward trends in firm profitability.
Several factors are behind the trend: a movement of young lawyers into the partnership as others in the equity tier retire; hesitancy among firm leaders to let lawyers go when demand is not dramatically dropping; and the pandemic stiffening the criteria for equity partner decisions, and out of a concern to keep up profits. (You decide which is most significant.) Conversations with recruiters and others with an ear to the industry, firms (especially BigLaw firms focused during the pandemic and performed triage on lawyers who were hot in hot practice areas, such as Bankruptcy and Real Estate Leasing.
Thus far, 81 of these firms have seen their nonequity tiers grow, while 51 saw growth of more than 5% in the nonequity tier. By comparison, 46 firms of the
had fewer nonequity partners in 2020 compared with 2019, and 29 of Thus,
some firms deequitized “unproductive” partners because their business no
longer fit into the American Lawyer’s compensation profile.
A firm’s decision to expand its nonequity tier is based on varying criteria. However, the pandemic has focused firms on the cost of equity partner promotions at many firms, making it more challenging to reach the equity tier, while law firm leaders reconsidered whether current equity partners were meeting expected performance.
One remarkable result of law practice is how quickly the firms returned to normal, loosened the frozen expenses and hording cash. Indeed, the pandemic has lowered costs in reduced office space (although litigation to be resolved before we have the whole picture) remote work, and technology instead of employees. Much of this is done in the name of efficiency and productively, but the brunt is being felt by profit participants to employees. And they are certainly factors at play. But try telling that to a partner who has been demoted from what used to be a partnership. Same work, no equity.
These explanations also beg the question why firms waited until the pandemic to swell their non-equity ranks.
Copyright 2021
Baum Stevens Bargman