BigLaw compensation model unsustainable

July 25, 2013 The new partnership structure at Akin Gump would seem to make good sense, providing the firm with greater cash reserves, decreasing reliance on bank loans and, as pointed out by the firm’s chair, Kim Koopersmith: “We thought it made sense to have everybody have skin in the game.”

But for non-equity partners invited to join the equity partnership in this way, it might not be a great deal. Until this point, those partners have been taking home a healthy paycheck - nice and simple. Now they’ll have to ‘buy’ their job, investing significant sums into the firm. The cash will stay with the firm until they leave, and their take-home pay might even decrease.

On the path to an all-equity partnership, those that don’t like the offered deal have little option but to leave the firm. And this process may actually be used to get rid of some partners, offering them unattractive deals in an opaque process.

Ed Reeser, a former Biglaw managing partner now working as a law consultant, identifies a number of problems with the partner capital system for Above the Law, pointing out that opaque financial policies and over-distribution of cash to partners makes it difficult for partners to know whether their firms are financially sound or not. He also opines that the current distribution levels to partners are unsustainable, with long term consequences that will be borne by partners, pensioned former partners, associates, staff and creditors in the future.

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