The moment you become an equity partner, you live under an entirely different compensation model. At most firms, a powerful committee will evaluate your contributions to the business and determine what percentage of overall profits you deserve. That approach can drastically bolster your earning potential. When your firm has a banner year or the wider market is at its frothiest—think back to the pandemic, for instance, when the global demand for legal advice soared—you’ll do tremendously well, far better than you would as a salaried employee who receives a performance bonus. In all likelihood, this is not a shocking reveal. On the subject of money, the prevailing gossip is basically correct: equity partners make a lot of it.
It’s not so easy, however, to decide how much money each partner should take home. In general, a compensation committee has to divvy up the profits based on certain guidelines. Perhaps the partnership has instructed it to reward achievements like client origination, the accumulation of billable hours and time spent in management. That’s a tricky job. How should the committee handle a partner who recently landed an impressive client but failed to achieve much else over the year? Should that person earn more than a partner who billed 2,200 hours, led a practice group and generated a modest amount of new business? No formula can calculate an airtight answer to either question. Ultimately, the committee will have to rely on its broad discretion to render a verdict. Some committees wield that power with care; others abuse it, lavishing undeserved riches on friends and allies.
Even if you belong to an equity partnership with a track record of honest and ethical leadership, you’ll still need to navigate another money-related hazard: the open compensation model. At the vast majority of firms, you’ll know the precise income of everyone else at the equity level. What you discover can be psychologically painful. Consider how it might feel to find out that the partner across the hall is set to earn $600,000 over the coming year, while your compensation sits at $500,000. Deep down, you understand that your colleague is the stronger rainmaker. But you also work really hard. No matter how much money you make (and, as an equity partner, you’ll make plenty), it’s difficult to learn that the firm values another partner more than you. That knowledge can poison relationships and wreak havoc on morale.
Here’s the simplest way to prevent that outcome. As long as you have some confidence in the compensation committee, accept its decision and move on with your life. Devote your finite time to building client relationships, delivering impeccable work and helping the firm thrive. That’s the actual job of an equity partner. Not stewing in your office, in a state of rage, over financial figures that you have little control over in the first place.