Reed Smith to Ask Nonequity Partners to Pay Chunk of Salary to Firm

Zach Lowe

The American Lawyer

Reed Smith will ask its roughly 300 nonequity partners to contribute a percentage of their base pay -- likely about 15 percent -- to the firm in order to maintain their partnership status, Gregory Jordan, the firm's chair, confirms to The Am Law Daily.

Those nonequity partners who choose not to kick in will lose their partnership status and instead can "opt to be a kind of salaried employee without those attributes of partnership," Jordan says. The exact title those nonparticipants will carry is unclear.

Jordan says the move is aimed at unifying partnership standards across the firm's international offices, though it has unnerved a chunk of the nonequity partner ranks, according to three sources familiar with the matter. Some nonequity partners outside the U.S. have a financial stake in the firm while those in the U.S. do not, Jordan says. The initiative, which will be rolled out in the coming months, is intended to clear up that problem by ensuring that anyone with the word "partner" in his or her title has something invested in Reed Smith, Jordan says.

"It's about not just saying you're a partner, but actually being one," Jordan says. "It means something. It revolves around risk-sharing in the business."

Jordan says the move is not simply meant to provide a quick-fix cash injection or as a way of culling the firm's nonequity partnership. "People could say, 'Oh, Reed Smith must need the money,' but the reality is we are having a very strong year," he says. "And if you wanted to just trim nonequity partners, there are much easier ways to do that."

Under the plan, nonequity partners will actually have three choices: pay the required percentage into the firm and become what Jordan calls "fixed-share partners"; decline the option and lose partnership; shift into the fixed-share system more slowly over the next couple of years.

"We're trying to keep the partnership aligned, not to create a situation that is so jarring that a given person can't deal with it," Jordan says.

Though there was no formal vote to approve the initiative, Jordan says he has held extensive talks with equity partners and nonequity partners worldwide and found substantial support for the move. 

The initiative comes in the wake of two rounds of layoffs at Reed Smith in the last 11 months, as reported by sibling publication The National Law Journal. In April the firm laid off 26 associates and 55 staffers; in December 2008, 115 staffers were let go.

Sibling publication The Legal Intelligencer, meanwhile, reported last week that the firm will cut first-year associate salaries by 20 percent and reduce first-year billing rates by approximately the same percentage.

Gross revenue at Reed Smith increased by about 10 percent in 2008 but profits per partner fell by 6.5 percent, according to The American Lawyer.

This article first appeared on The Am Law Daily blog on AmericanLawyer.com.