When is profit not real profit?

When is profit not real profit? When it's based on a tiny equity partnership, according to an increasing number of lawyers. The pressure to deliver ever-higher profits may start skewing partnership structures out of control. Our research shows that of the firms reporting more than £400,000 profit per equity partner (PEP), many of them operate increasingly restricted access to the senior levels of the partnership.

Clifford Chance is hiking its figures through a mixture of costs management and parsimony with the equity. Linklaters has been tinkering with its equity partnership numbers for two years. Lovells is famously de-equitising 25 partners to help improve the average profit figures. This year, Herbert Smith is expecting average PEP of at least £735,000, and well it ought; only 56 per cent of its partners participate in the equity.

DLA and BLP have both passed the psychologically important £500,000 bar for the first time, and they're cock-a-hoop. But then, DLA has squeezed the equity for years. An astounding 70 per cent of its partners are salaried. Its US merger will only put on more pressure, especially when the exchange rate tips back in the Americans' favour. What's surprising is how much BLP is aping DLA's ruthless business model. It's not quite mini-me, but it's not that far off. Yes, BLP has let half a dozen more into the equity this year, but only 52 per cent of its partners still enjoy a full profit share.

Over the next few months, The Lawyer will be running plenty of stories on year-end figures. It's our job as business journalists to report the figures, but the wider context is just as important. Obviously, we applaud fabulously well-run businesses such as DLA or BLP, but the performance of firms such as Slaughter and May, Freshfields and Camerons, which operate all-equity partnerships and which manage excellent average PEP figures, are even more praiseworthy.

This year, an average PEP of £400,000 will be the key to City respectability. There is, of course, something faintly obscene in that. Legal journalists are entirely aware of the distasteful ironies. We're not proud of helping create an environment where an average profit take of £200,000 for commercial lawyers is considered to be woeful - and this in a country that only brought in the minimum wage in 1999. But it cuts both ways. If you're earning that amount, you'd better be damn sure you're worth it. If you're not, take a pay cut. Welcome to the real world.