Two-Tier or Not Two-Tier? The Equity Partnership Dichotomy

The first major distinction to be made is how the way the partnership is structured affects the bottom line. The conventional wisdom is that a two-tiered partnership allows the rainmaking equity partners to keep more of the ''pie'' to themselves. In other words, non-equity partners exist so that the profits of the firm can be split among a smaller pool of partners — typically those who are the ''major players'' in the firm. Presumably, a partner is more likely to promote only those lawyers who are contributing to the profitability of the firm, and the non-equity category exists so that there is no need to share profits with valuable, but less profitable, partners.

The evidence doesn't support the proposition that equity partners make more money in a two-tiered partnership. It appears that the firms that choose to have single-tier partnerships (though they find themselves in the ever-shrinking minority of firms) are the most profitable. In his blog, Adam Smith, Esq., Bruce MacEwen makes the convincing case that the most recent AmLaw statistics prove that profits per partner are inversely proportional to the percentage of non-equity partners a firm allows. In other words, firms with single-tier partnerships (i.e., no non-equity partners) generally have the highest average revenue per lawyer.