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Lower mid-tier firms keep iron grip on equity amid falling margins
The scale of the barrier facing junior lawyers aiming for equity partnership has been revealed in The Lawyer UK 200 Annual Report 2009, published today (7 September).
The report, which charts the financial performances of the UK’s top 200 firms, as well as the bar and the top 30 international firms, includes a ranking of the most profitable firms in the country.
The main UK 100 table illustrates how closely the equity is currently being held in the UK’s top firms, with regional practices and those in the lower mid-tier revealed as the most parsimonious with their equity.
The Lawyer’s earnings per partner (EPP) figures show what the average profit per equity partner (PEP) would look like if the earnings of non-equity partners were factored in. In cases where firms have kept the equity particularly tight, the impact is dramatic.
Tony Williams of consultancy Jomati comments: “PEP’s still the favoured metric for a firm’s virility test, but it’s been so abused by the use of non-equity or partial equity partners as to be almost meaningless.”
At the Europe, Middle East and Africa operations of DLA Piper, where only 31.6 per cent of the partners are equity, PEP falls by 45.6 per cent, from £645,000 to an EPP of £351,000, when the non-equity partner remuneration is factored in.
In contrast, at Slaughter and May, which has only six non-equity partners, the estimated PEP of £2.25m drops only slightly to £2.18m.
Although the financial data primarily highlights the disparity between the earnings of equity partners and their salaried or fixed-share colleagues, the gap also illustrates how entry to partnership has become more difficult in recent years.
H4 Partners consultant Alan Hodgart said the trend was less about firms deliberately blocking lawyers from the equity in an attempt to keep PEP artificially high and more about firms taking strategic decisions that have the consequence of increasing PEP.
“Take Freshfields [Bruckhaus Deringer],” argued Hodgart. “That firm didn’t have a cleanout of around 100 partners to make the PEP higher, it did it to focus the business on a smaller group of clients and corporate transactional matters. The fact that this had a major upward impact on its PEP wasn’t the reason it did it.”