Regional firms dominate tightest equity rankings
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.”
Readers' comments (8)
Parabits | 7-Sep-2009 12:05 pm
Plexus law has just 4 equity partners which is very small indeed for a business that turns over about £80million and has more than 50 Partners. But, it seems to work. No committees, no in-fighting, just a focused business which makes a healthy profit.
Unsuitable or offensive? Report this comment
Poolsider | 8-Sep-2009 6:50 pm
I have heard that about Plexus but do wonder what the other 50 Partners make about having no equity share and probably no prospect of having any. How expensive would that be in any event? Millions surely? Wonder what their succession plan is. We struggle with 33% equity but only 4% equity Partners? Sell out to a financial institution or a float I suspect.
Unsuitable or offensive? Report this comment
Amazed | 8-Sep-2009 9:32 pm
If parabits is right and there are just 4 equity partners in a business of that size it is amazing. Good luck to them. Question - if the firm is that big why is it not in the Top 50? Other question: how long will the other 50 partners sit around with no promotion prospects? Anyone with a following will surely go eventually if equity prospects are all but non existent?
Unsuitable or offensive? Report this comment
I'm in Reno, baby | 12-Sep-2009 10:04 pm
Plexus has a good business model. It's the way forward for firms of that type.
Unsuitable or offensive? Report this comment
Louisa Lou Lou | 12-Sep-2009 10:40 pm
Good firm but why this business model? Undervaluing 50 Partners and giving them no prospects must surely affect morale. Nice life for the 4 at the top no doubt (who earn millions I hear). Is Parabits the PR dept of Plexus??
Unsuitable or offensive? Report this comment
nonsenseman | 13-Sep-2009 8:14 pm
I agree with Amazed. No equity succession equals no future. Even if the 4 equity partners do float this practice the other 50 partners won't get a share and will leave eventually. Who'd buy faced with that?
Unsuitable or offensive? Report this comment
Anonymous | 14-Sep-2009 8:37 pm
Plexus who ? Never heard of them.
Unsuitable or offensive? Report this comment
ex-praxis | 20-Sep-2009 7:59 pm
You all miss the point. I used to work at Praxis before the change of name to Plexus. Good firm. Great quality people, particularly the Partners in the North (Leeds). Everyone there knows what the future holds and they know that Andrew McDougall and the other 3 equity partners own the firm lock stock and barrel. The point is that the other Partners are not dumb and know their fate. Despite this there is still something there that keep them happy. Perhaps it is the £300K plus that fixed share equity partners get! Still we short of the millions the equity guys get but a nice life none the less. The salaried partners get shafted though.
Unsuitable or offensive? Report this comment