The Salaried Partner Dilemma: Part I

This is the introduction to a three-part series by Moray McLaren, Professor at the LawAhead Centre on the Legal Profession, IE Law School, and consultant with Lexington Partners, on the two-tier partnership system many law firms are now employing. It follows his lead article in The Practice from November/December 2023, “Defining the Perfect Partner.”

Despite ongoing predictions, the partnership model in law firms is still alive and well. As Mark Twain noted about his own death, not only were the reports of its demise greatly exaggerated but elite law firms continue to experience high growth and increasing profitability.

Understanding the changing expectations of their clients and people while managing profitability within the framework of the traditional partnership, however, is increasingly challenging.  In this uncertain and ever-changing world, firms are quite rightly asking: Will what got us here get us there? Which aspects of our present approach are fit for purpose, and what needs to change with the times? In this four-part series—and follow-up to “Defining the Perfect Partner,” published in the November/December 2023 issue of The Practice—I seek to dive further into what partnership of the future looks like. To better understand the landscape, the series is based on a survey of 193 firms distributed to the officers and members of the International Bar Association´s (IBA) Law Firm Management Committee (LFMC) through July – September 2024.

Related content

Lead Article

Related content

Defining the Perfect Partner

Moray McLaren

Deciding who will be the next equity owners is one of the most challenging questions for any partnership — some firms will have too many potential candidates and others too few. Preparing, selecting, promoting, and supporting the next generation while providing a path into retirement for the most senior of partners is a complex task.

As we shall see in the research, an increasing number of law firms globally are moving away from an equity-only partnership model and either adopting or expanding their existing salaried partner category. These partners, in name only, lack the three key elements of equity: ownership, decision-making, and profit sharing. Developments in the U.S. have been making headlines — Cleary Gottlieb Steen & Hamilton, Cravath Swaine & Moore, and Paul Weiss, amongst others, are introducing non-equity tiers — although the trend is clearly global.

The logic behind such moves is clear. Driven by the need to attract and retain top talent, offer more flexible career paths, and maintain profitability despite market uncertainty, law firms are introducing the salaried partner tier in order to offer the prestige and financial benefits of partnership to a broader group of lawyers while still maintaining a core group of equity partners who share in the firm’s profits and decision-making.

In our research, we see that many firms are adopting a two-tier partnership for all the right reasons but failing to deliver in terms of the aspirations for both equity and salary partners. The aim of the research is, therefore, to clearly define the opportunities and risks of a two-tier partnership – developing the key success factors for different types of law firms. We were also keen to better understand whether experiences are similar or different in various types of law firms and in different parts of the world. In this series, we are only able to include a fraction of the results – please contact us directly if you would like to learn more or participate in our further research projects.

Survey highlights

• 77 percent of respondents say their firm has a salaried partner tier, with partnerships ranging from more than 50 percent  salaried to less than 10 percent. A quarter of international firms have more salaried than equity partners.
• 35 percent of survey respondents say they are either considering increasing the proportion of salaried partners or have done so recently. The group is led by national (40 percent) and niche (37 percent) firms, compared to 28 percent of regional and 24 percent of international firms.
• All types of firms are consistent in stating that the main advantage of the salaried partner role is that it is a good way to retain the best people by shortening the career pathway/providing vital “test” experience for a possible equity role.
• Similarly, all firm types say the main disadvantage of the salaried partner role is that it delays difficult decisions and can create “second-class citizens” within the firm. Increasing costs came lower down the list of disadvantages.
• International and national firms tend to have different selection criteria for salaried and equity partners. However, regional and niche firms say the criteria for selecting salaried versus equity partners are more similar.
• Just over half (54 percent) of firms say that salaried partners are not less profitable than senior associates but that decreases to as low as 10 percent depending on type of firm. 
• Almost all (98 percent) of respondents expect their salaried partners to build client relationships which originates work.
• More than half (69 percent) of those surveyed firms say they have a higher billable hours’ expectation for salaried then equity partners. Just under a third (31 percent) expected their equity partners to bill more hours than salaried partners.
• The salary uplift from senior associate to salaried partner ranges from 27-36 percent among survey firms. Niche and national firms give an average of a 36 percent uplift, followed by international firms with a 33 percent increase, and regional firms offering 27 percent. There would then be a 33-43 percent raise in pay in year one when moving from salaried to equity partner.
• On salaried partners´ billable hours per year, the international firms set the highest volume (particularly in the 1600 and 1400-hrs bracket), followed by national and regional firms.

Research methodology

The survey was distributed to the officers and members of the International Bar Association´s (IBA) Law Firm Management Committee (LFMC) through July – September 2024.. In total, 193 firms participated by completing a survey plus there engaging in several follow-up interviews. All firms provide commercial law advice to international plus local clients, primarily corporations. See the data on the participating firms below.

The research was commissioned by the LawAhead Centre on the Legal Profession at IE Law School in Madrid and I am grateful to the President, Luis de Carlos; Executive Director, Cristina Andrés and the Dean, Soledad Atienza, for their guidance and support.  We must also acknowledge the ongoing support of the officers of the IBA´s Law Firm Management Committee (LFMC).

About the authors

Moray McLaren is a Professor at the LawAhead Centre for the Legal Profession at IE Law School and a member of the Moller Institute at Cambridge University. A co-founder of Lexington Consultants, he has been advising law firms for the last 30 years.

The research analysis was completed by Chris Dignan an award-winning writer with more than 30 years’ experience in journalism, business communications and public relations.

Mari Cruz Taboada is Lexington´s Head of Client Management & Legal Innovation. A lawyer by training, she advises law firms as they modernise, seek growth and enter new markets through alliances and mergers. Passionate about client satisfaction, innovation and change, Mari Cruz has been an Associate Professor at IE Business School in Madrid for over a decade and is an active member of the LawAhead Centre at IE Law School.

The authors are very grateful to Stephen Revel for his support in making this research possible. Stephen practised at Freshfields as a corporate transactional lawyer for over 40 years on three different continents and was a partner for more than 30 years.  During his time at Freshfields he was based in London, New York, Hong Kong and Singapore, and held a variety of senior leadership and management positions. Stephen was also the leader for many years of Freshfields’ StrongerTogether initiative, its network of elite relationship firms around the world. He is very active in the International Bar Association (IBA) and is the Vice Chair of their Law Firm Management Committee.

Stay tuned for part II and III.