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More Non-Equity Partners = Lower PPP
When The American Lawyer released its Am Law 100 report last week, many noticed a correlation between increased PPP (profits per partner) on the one hand and the decline in the number of equity partners and growth in the category of non-equity partners on the other. This correlation might lead some to assume that law firms with a higher percentage of non-equity partners will have larger PPP's, because there are fewer partners taking a piece of the profit pie.
But as Bruce MacEwen convincingly argues, the truth is that firms with a larger percentage of non-equity partners have lower PPPs overall. The reason? As MacEwen describes:
As it turns out, what comes with introducing a non-equity tier is a subtly changed dynamic in the incentive set facing your talent. Firms with a single-tier partnership attract the true Type A's: Those of us who have never finished anywhere but at the top of a class and have no intention of starting to do otherwise. But the two-tier firms hold out a veiled alternative: If you keep your nose clean and work (reasonably but not insanely) hard, you might find yourself taking home (say) $400,000 per year, adjusted for inflation, for the duration. And you won't have to kill yourself in either billable hours or business generation.
As MacEwen explains further, non-equity partners cost the most and are also less productive than either partners or associates.
Sure, there are reasons to establish non-equity partnership tracks -- perhaps to hold on to specific individuals or to facilitate work-life balance. But increasing revenues and boosting profitability isn't one of them.
Posted by Carolyn Elefant on May 8, 2008 at 03:05 PM | Permalink
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