Decades ago, long before it was a private-equity powerhouse<\/a>, the law firm Kirkland & Ellis was a pioneer of a model that overturned a long-standing norm in the legal industry. <\/p>\n The Chicago-founded firm started promoting lawyers to partner without granting them the very thing that defined partnership \u2014 an ownership stake in the firm.\u00a0It was partnership in name only.<\/p>\n The move gave newly promoted \u201cnon-equity\u201d partners, with about six years\u2019 experience, an incentive to start proving they could bring in profitable work for the firm. And to the outside world, it put their hourly billing rates on a higher level during some of the most productive years of their career. <\/p>\n It offered a chance to boost profits without diluting returns for the firm\u2019s best-paid lawyers, an elite group of equity-holding partners.\u00a0But some in the legal industry feared that the move would undermine the prestige of the partnership title that lawyers toiled for years to achieve. \u201cKirkland kind of handed it out like candy\u201d, a lawyer at a rival firm said. <\/p>\n As Kirkland has risen to become the world\u2019s highest-grossing law firm, earning nearly $9bn in revenues last year<\/a>, many of its rivals have adopted a similar model, as they attempt to emulate its success. While the model has been popular for decades, even firms that held out for longest are now taking it up, in a sign of how comprehensively the rise of Kirkland and its moneymaking machine has roiled the world of Big Law.\u00a0Kirkland declined to comment. <\/p>\n Debevoise & Plimpton said this month that it had created a non-equity partnership tier. US rivals Paul Weiss, Cravath, Swaine & Moore<\/a> and Cleary Gottlieb were among those to do so over the past two years. Meanwhile, Skadden Arps, Ropes & Gray, and the UK-based \u201cmagic circle\u201d firm Freshfields \u2014 which is making a major push into the US \u2014 are all considering the move, according to people with knowledge of the situation. <\/p>\n \u201cThe now near-universal adoption of the non-equity partner tier is part of the \u2018Kirklandisation\u2019 of Big Law,\u201d said Scott Gibson, founder of legal recruitment consultancy Edwards Gibson.<\/p>\n In all, 87 of the 100 largest law firms now have salaried partners, according to data from the American Lawyer. <\/p>\n Cravath, Paul Weiss, Debevoise, Freshfields and Cleary declined to comment. Skadden didn\u2019t respond to a request for comment and Ropes said its partners \u201cregularly review all aspects of our business to ensure we are best meeting our client needs and talent goals\u201d.<\/p>\n The tier allows young or lower-billing partners to be paid a salary<\/a> rather than equity from the firm\u2019s profit pool, whilst still holding the partner title and associated prestige.\u00a0<\/p>\n It was \u201ca leverage play in terms of the economics, how much money you can make off your people\u201d, a partner at a global top-10 firm said. \u201cThere\u2019s a tier of hundreds of lawyers who are not eating into the profits of the equity partners \u2014 in fact they\u2019re adding to the profits.\u201d\u00a0<\/p>\n The model helps poach rivals\u2019 best lawyers by offering them partnership status at a young age. That makes firms vulnerable if they cannot match the offer. <\/p>\n Paul Weiss chair Brad Karp<\/a> said last year that it had introduced the tier to \u201caddress head-on the competitive realities of the current marketplace\u201d after nearly a century of all-equity partnership. <\/p>\n The non-equity tier also offers a solution to another consequence of Kirkland\u2019s rapid rise. The Chicago firm\u2019s growth has forced law firms into a push for expansion, as they seek to avoid falling too far behind. <\/p>\n But hiring more equity partners in such an expansion would dilute the share of the profit pool available to existing partners. That makes the non-equity tier more attractive. <\/p>\n A partner compensation survey of America\u2019s top 200 firms from legal\u00a0recruiter Major, Lindsey & Africa in 2024 found that equity partners took home more than three times the pay of salaried partners. Average compensation for equity partners was $1.9mn compared with $558,000 for their non-equity colleagues. <\/p>\n At Kirkland, the differential is even more stark: salaried partners take home about $750,000, according to two former partners. That compares with an average profit per equity partner of $9.3mn.<\/p>\n The salaried-partner tier can also save costs: once lawyers are promoted to non-equity partners in the US, they can be on the hook for the full cost of social security and Medicare contributions, rather than splitting it with the firm, according to two people with knowledge of the structure. <\/p>\n Still, not everyone is happy with the arrangements. Last year Meagan Garland, a non-equity partner at Philadelphia-headquartered Duane Morris, sued the firm<\/a>, alleging that its salaried partners \u201care in fact employees\u201d but because they were not classified as such, they were denied some benefits and had costs shifted to them. The firm denied misclassification, court documents show. Duane Morris did not immediately respond to a request seeking comment.<\/p>\n Garland\u2019s lawyer said: \u201cThe non-equity partner concept takes advantage of a lawyer\u2019s dream of climbing the ladder, while shifting costs away from those who have actual ownership in the firm. Most will never leave the costly purgatory of non-equity partnership.\u201d<\/p>\n At Kirkland, it can have the effect of sifting lawyers. Non-equity partners can be promoted to full partnership after three years, if they prove their value to the firm in that period. Those that don\u2019t make equity partner often leave.\u00a0<\/p>\n As more firms make the shift, the pressure rises for others to follow \u2014 or risk losing lawyers to rivals that have. Still, some firms criticise the two-tier structure for its potential to let non-equity partners overcharge clients because of the title. <\/p>\n A&O Shearman recently phased out the non-equity tier that Shearman & Sterling had when it merged with UK magic circle firm Allen & Overy.\u00a0<\/p>\n \u201cOne of the features [\u2026] that we found attractive in terms of the combination was a bit of a return to the structure which we\u2019d had, which was an all equity partnership,\u201d Adam Hakki, co-chair of A&O Shearman\u2019s executive committee said previously. Hakki told the Financial Times this month that he believes the model helps incentivise \u201cfirmwide collaboration\u201d.<\/p>\n UK elite firm Slaughter and May<\/a> is meanwhile still resisting a non-equity partnership tier. A proponent of the now widely abandoned or adapted \u201clockstep\u201d compensation model, where partners are paid based on experience rather than how much revenue they generate, it is sticking with its traditions. <\/p>\n The firm has long operated on the basis that it promotes young lawyers to partner earlier <\/a>than its peers, which makes it less vulnerable to its best associates leaving, and has a tightly managed top tier that means less than 10 per cent of its trainees will ever achieve the coveted title.<\/p>\n Mid-tier UK firm Addleshaw Goddard was considering moving away from a stark two-tier partner model to admit more partners into the equity, managing partner Andrew Johnston told the FT. Any change would probably take effect next year, he said.<\/p>\n \u201cAll partners at the firm, regardless of level,\u00a0have similar voting rights and remuneration arrangements and so simplifying the structure would be a natural evolution,\u201d Johnston said.<\/p>\n Some other firms have introduced the model on what one US lawyer describes as a \u201cstealth basis\u201d, such as using the non-equity status in limited circumstances or when hiring lawyers from rivals. <\/p>\n![\"Rain](\"https:\/\/www.ft.com\/__origami\/service\/image\/v2\/images\/raw\/https%3A%2F%2Fd1e00ek4ebabms.cloudfront.net%2Fproduction%2F7fde600b-dac7-413b-819b-c44ffdb3d7da.jpg?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1\")
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