Decades ago, long before it became a private equity powerhouse, law firm Kirkland & Ellis was a pioneer of a model that overturned longstanding norms in the legal industry.
The Chicago-designed company began promoting lawyers to partners without the very thing that defined a partnership: ownership of the company. It was a name-only partnership.
The move has given the newly promoted “non-equal” partners an incentive to prove that they can bring profitable jobs for the company with around six years of experience. And they put their hourly billing rates at a higher level in the outside world during some of the most productive years of their careers.
It provided the opportunity to increase profits without diluting the returns of the best payment lawyers of the company, an elite group of stockholding partners. However, some in the legal industry feared that the move would undermine the fame of the partnership titles that lawyers struggled to achieve for years. A lawyer for a rival company said, “Kirkland handed it over like candy.”
With Kirkland becoming the world’s best-selling law firm and earning around $9 billion in revenue last year, many of its rivals employ similar models to try to emulate success. The model has been popular for decades, but it’s a sign that shows just how comprehensively the rise of Kirkland and its money-making machines are shaking the world of big legal, even long-extended companies have taken it. Kirkland declined to comment.
Debevoise & Plimpton said they created a non-equity partnership tier this month. American rivals Paul Weiss, Cravas, Swain & Moore and Cleary Gottlieb have been doing so over the past two years. Meanwhile, Skadden Arps, Ropes & Gray and Freshfields, a UK-based “magic circle” company, have made a big push to the US, but all are considering the move, according to people with knowledge of the situation.
“Currently, hiring near the informal partner tier is part of the big law’s ‘kirkland dissertation’,” said Scott Gibson, founder of legal recruitment consultancy Edwards Gibson.
In all, 87 of the largest 100 law firms have pay partners, according to data from American lawyers.
Cravath, Paul Weiss, Debevoise, Freshfields and Cleary declined to comment. Skadden did not respond to requests for comment, and Rope said that the partners will “regularly review every aspect of the business to maximize the needs and talent goals of our clients.”
This tier allows young or low-building partners to pay their salaries rather than fairness from the company’s profit pool, while retaining the fame associated with the partner title.
It was “leverage play in terms of economics, how much money you can make from your people,” said a partner at the top 10 global companies. “We have hundreds of lawyers who don’t eat the profits of their stock partners. In fact, they’re making more profits.”
This model supports the best lawyers of Porch rivals by providing partnership status at an early age. That makes the company vulnerable if they can’t match the offer.
Paul Weiss Chairman Brad Karp said last year after almost a century of all capital partnerships, he introduced tiers to “task head-on with the competitive reality of the current market.”
The informal class also provides solutions to another outcome of Kirkland’s rapid rise. With the growth of the Chicago company, law firms are seeking expansion as they try not to delay too late.
However, hiring more equity partners with such expansions would dilute the share of the profit pool available to existing partners. This makes the unofficial tier even more attractive.
A 2024 Lindsey & Africa’s Legal Recruiter Major’s Partner Compensation Survey of Top 200 American Companies found that equity partners brought home more than three times the salary partners. The average compensation for equity partners was $1.9 million compared to the $558,000 of their non-stock colleagues.
At Kirkland, the gap is even more severe, according to their two former partners. This is compared to the average earnings per share partner of $9.3 million.
Payroll partners can also save money. When lawyers are promoted to a non-equity partner in the US, they can hook it for the full cost of Social Security and Medicare contributions, rather than splitting it with the company, according to two people with knowledge of the structure.
Still, not everyone is happy with the arrangement. Last year, Megan Garland, a non-subsidized partner of Duane Morris, headquartered in Philadelphia, sued the company claiming that the pay partner was “actually an employee,” but because they were not classified as such, they were denied some profit and shifted costs. The company refused to misclassify it, court documents show. Duane Morris did not immediately respond to requests for comment.
Garland’s lawyer said: “The concept of non-equal partners is taking advantage of the lawyers’ dreams while shifting costs from those who have actual ownership of our company.
In Kirkland, it has the effect of sifting lawyers. Non-equity partners can be promoted to a full partnership in three years if they prove their value to the company during that period. People who don’t have equity partners often leave.
As more companies make a shift, the pressure rises for others to follow. Or you risk losing to a rival who has a lawyer. Still, some companies have criticised the two-tier structure as it could potentially overcharge clients to non-subsidized partners due to the title.
A&O Shearman recently phased out the unofficial tier that Shearman & Sterling had when she merged with British magic circle company Allen & Overy.
“One of the traits we found to be combined and attractive is a bit of a return to the structure we had. This was all a fair partnership,” said Adam Hakki, co-chair of the A&O Shearman executive committee. Hakki told the Financial Times this month that he believes the model will help encourage “company-wide collaboration.”
The massacre of British elite companies and May still resist the non-subsidized partnership class. Advocates of the now widely abandoned or adapted “lockstep” compensation model. Partners are paid based on experience rather than the amount of revenue they generate, and stick to that tradition.
The company has long been operating based on encouraging young lawyers to promote partners faster than their peers.
Address Shaw Goddard, a mid-tier UK company, was considering moving away from the strict two-tier partner model to acknowledge more partners fairly, partner Andrew Johnston told FT. Any change will come into effect next year, he said.
“Simplifying the structure would be a natural evolution, as all partners in the company have similar voting rights and reward arrangements, regardless of the level,” Johnston said.
Some other companies have implemented models of what one US lawyer describes as “stealth-based,” such as using inequality status in limited circumstances or hiring lawyers from rivals.
Linklaters maintains almost all fairness models, but there are facilities that offer non-equity partner status to minorities who practice in niche regions and low-charge markets. This allows people to promote without having to walk through the profit pool for their stock partners.
A US lawyer said the companies that still hold them are taking risks. “If it’s there and everyone gets it, you’re at a high risk of people being poached. In this market, being that inflexible is a pretty unstable position.”
Additional Reports by Arash Massoudi in London
