One factor boosting Kirkland’s profitability is its huge nonequity partner class. A little more than half of Kirkland’s 709 partners are "nonshare" partners, as the firm calls them. Kirkland asso­ciates make partner earlier than at most firms, after six years, and they generally work another three to four years before they find out if they’ll be selected for share status or must leave. Most recently the firm made 84 nonshare partners, and promoted 22 to share status.
"That is the key to understanding Kirkland & Ellis," asserts former Kirkland equity partner Paul Cappuccio, now executive vice president and general counsel of Time Warner Inc. "The firm makes a ton of money on [the nonshare partners], and they work a ton of hours. It is the engine. It is genius. And it’s good for young lawyers. But you have to do it right. You have to train them well and have some selectivity."
These nonshare partners—who are billed out between $650 and $800 an hour, according to recent bankruptcy fee filings—are paid much less than equity partners. On average they make an estimated $465,000. In fact, of all the two-tier partnerships in The Am Law 200, Kirkland appears to have the second-widest gulf between nonequity and equity partner pay: The average nonshare partner makes 14 percent of what a share partner makes. (Quinn Emanuel Urquhart & Sullivan has a bigger gap.)
Here’s the math: A nonshare partner who bills 2,000 hours in a year at $700 an hour would generate $1.4 million in revenue. After paying the partner $465,000, and subtracting for overhead, the firm would be left with at least $800,000 in profit. Multiply that by 384 for each nonequity partner, and you have a little more than $300 million, which is roughly 30 percent of the firm’s profit in 2012.
"It’s not the silver bullet," insists Kirkland chairman Jeffrey Hammes, who declined to comment on this estimate. "I would tell you that [the firm's profitability] has more to do with the types of businesses we’re in and the synergies of those businesses, which result in high utilization and stable cash flow. We don’t have a lot of lawyers sitting around billing 1,100–1,200 hours."
While other firms have senior associates who bill around $700 an hour, Kirkland has a higher proportion of people at that level than most firms. The reason that Kirkland can create so many new nonshare partners every year without exploding its partner ranks is that many more partners leave the firm in their late fifties than at other firms, moving to clients or other ventures.