This paper is intended as a guide. Partner compensation in law firms is a complex topic shaped by each firm’s strategy, culture, and structure. While certain patterns are common, no two firms are identical. This paper explores how partnerships are structured, how compensation models operate, and what attorneys should consider when evaluating their position or exploring a lateral move.
The Evolving Landscape of Law Firm Partnerships
All attorneys begin their careers as associates, working their way up through the ranks. For some, the goal is partnership. Yet “partnership” is not a single, uniform status. The role, responsibilities, and compensation of a partner vary significantly from one firm to another.
Today, law firms offer a range of partnership structures, from equity ownership to salaried positions. The differences go beyond title. They affect voting rights, profit sharing, long-term security, and mobility. Understanding these distinctions is essential for attorneys at any stage of their career.
Equity and Non-Equity: The Two Main Partnership Paths
The most fundamental division in partnership structures is between equity and non-equity partners.
Equity partners are owners. They contribute capital, share in profits, and participate in firm governance. With ownership comes influence over major decisions, such as hiring, strategic direction, and compensation structures. Equity partners assume greater financial risk but also stand to gain the most when the firm performs well.
Non-equity partners hold the title of partner without ownership. They are typically compensated via salary, sometimes supplemented with bonuses. Their voting rights are limited, and they do not share directly in the firm’s profits. Non-equity status can offer flexibility in work arrangements and less financial risk, but usually comes with less long-term security and influence.
How Attorneys Become Equity Partners
There are two common routes to equity:
- Buy-In
The attorney purchases a share of the firm. The buy-in amount depends on the firm’s size, profitability, and capital requirements. Many firms offer financing options for the buy-in, with terms outlined in the partnership agreement. - Sweat Equity
Equity is earned through sustained contributions over time—billable work, client originations, leadership, and firm development. The value of these contributions is measured against the firm’s profitability, with shares awarded accordingly.
Both approaches tie equity to value creation, but the path differs depending on firm culture, growth strategy, and capital structure.
Titles: What They Mean, What They Don’t
Partnership titles are far from standardized. An “equity partner” in one firm may have a different scope of authority and compensation than in another. Likewise, titles like “income partner” or “managing partner” can carry different expectations.
- Equity Partner / Shareholder / Member: Signifies ownership and a share of profits.
- Non-Equity / Income / Contract Partner: Partner in title, salaried compensation, limited governance role.
- Managing Partner: Oversees firm operations; can be equity or non-equity.
- Staff Partner: Partner in expertise but without a large book of business; may still bill at partner rates.
- Of Counsel / Senior Counsel: Experienced attorneys affiliated with the firm but not partners, often semi-retired or transitioning roles.
Understanding how a firm defines its titles—and how compensation aligns with them—is critical before making any move.
Compensation Models: No Single Formula
Partner compensation is one of the most complex aspects of firm management. There is no universal formula. Instead, firms adopt models that reflect their size, strategy, and culture.
Some firms value stability and loyalty, rewarding longevity. Others emphasize performance, rewarding the highest billers and rainmakers. Many adopt hybrid systems to balance collaboration with incentives for individual achievement.
Closed vs. Open Compensation
One of the first distinctions in firm compensation is closed versus open systems.
In a closed model, only the compensation committee knows what each partner earns. This maintains privacy but can create mistrust if criteria are unclear.
In an open model, all partners know what others earn. This promotes transparency and can reinforce a culture of collaboration, but it can also create friction if pay differences are perceived as unfair.
Most firms fall somewhere in between, sharing some information while maintaining discretion over individual details.
Common Compensation Approaches
Lockstep Model
In a pure lockstep model, equity partners are compensated based on tenure. Each year of seniority increases pay according to a set scale.
This model promotes stability, loyalty, and teamwork. It encourages partners to prioritize the firm’s long-term success over individual gains. However, it can under-reward high performers and does not easily address underperformance.
Lockstep remains common among top AmLaw firms but is often modified to include performance considerations.
Merit-Based or Modified Lockstep
Many firms use a merit-based or modified lockstep model. This combines the stability of lockstep with adjustments for individual performance.
Performance can be measured in several ways, including originations, billings, leadership contributions, and non-billable firm service. The goal is to reward exceptional performers without undermining firm cohesion.
Formulaic Approach
The formulaic model compensates partners based on measurable contributions, such as:
- Billable and non-billable hours.
- Client originations and new matters opened.
- Administrative duties, mentoring, and leadership.
This model provides transparency and predictability. However, it may overlook intangible contributions, such as cross-selling or enhancing the firm’s reputation.
Eat What You Kill
In an eat-what-you-kill model, compensation is tied directly to revenue generated by the individual partner.
This model rewards rainmakers and is simple to calculate. However, it can discourage collaboration and investment in long-term firm initiatives. It is common in smaller firms, virtual law firms, and certain practice-specific boutiques.
Hybrid Models in Practice
Most firms use hybrids of these models, blending stability with performance incentives. For example:
- A lockstep base with merit-based bonuses.
- Origination credit formulas supplemented by discretionary adjustments.
- Eat-what-you-kill structures for lateral partners transitioning into equity.
Hybrid models allow customization but require clear communication to avoid confusion or resentment.
The Rule of Thirds: A Benchmark for Partner Compensation
Among the many ways to think about partner compensation, the Rule of Thirds remains one of the most widely referenced benchmarks. While it is not a formal formula—and should never replace a full compensation analysis—it offers a quick way to estimate the value of a partner’s book of business and their potential draw or base compensation.
Under the Rule of Thirds:
- One-third of collected revenue covers the partner’s compensation (base draw or salary).
- One-third is allocated to firm overhead (office space, staff, infrastructure, technology, insurance, etc.).
- One-third is retained by the firm as profit.
This model is most common in traditional brick-and-mortar firms. Virtual law firms often deviate significantly, with some offering partners up to 80% of their collected revenue due to lower overhead costs. Smaller or boutique firms may offer 40% or more on new business, depending on the nature of the practice and the firm’s cost structure.
It is important to note that the Rule of Thirds primarily considers origination credit. It does not capture the intangible contributions that partners make to the firm—mentorship, leadership, client retention, or market visibility—all of which can have real value in compensation discussions.
Measuring Success Beyond the Rule
While the Rule of Thirds is a useful guidepost, it is only a starting point. Partner compensation ultimately depends on a broader set of metrics, including:
- Origination and billing history (often measured over the last three years).
- The size and stability of the partner’s client portfolio.
- Leadership contributions within the firm.
- Practice area growth potential.
Billable hours remain one of the most straightforward measures of productivity, but in today’s competitive market, firms are equally focused on strategic value—how a partner helps position the firm for future growth.
Knowing Your Value in the Market
For attorneys seeking promotion or considering a lateral move, preparation is key. This means:
- Knowing your origination and billing figures for at least the last three years.
- Understanding the profitability of your book of business relative to firm overhead.
- Having a clear marketing plan for future growth.
- Being prepared to complete a Lateral Partner Questionnaire (LPQ), which will form the basis of many compensation discussions.
Assessing your value is essential before entering the market or beginning negotiations. In a competitive lateral environment, clarity on your worth can make the difference between a satisfactory offer and an exceptional one.
Closing Perspective
Partner compensation is not just about numbers. It is a reflection of a firm’s culture, priorities, and strategic direction. For attorneys, understanding these systems is essential for making informed decisions about career growth and firm alignment.
Whether remaining with your current firm or considering a lateral move, the most successful partners are those who align their strengths with the firm’s compensation structure—and position themselves where both can thrive.
About: On Balance Search Consultants
On Balance offers great insight and industry intelligence. Shari Davidson, president of On Balance Search Consultants, advises experienced attorneys at every stage of their career to take them to the next level. From making the lateral partner move to succession planning.
Shari takes a proactive approach to advising law firms on how to take a firm to the next level and helps rising talent make the transition to the right law firm. On Balance Search identifies opportunities that exist today, not down the road.
Contact us today. Call 516-731-3400
Please note that the content of this blog does not constitute legal advice and is only intended for the educational purpose of the reader. Please consult your legal counsel for specifics regarding your specific circumstances and the laws in your states pertaining to social media and any legal restrictions regarding the law.
