Starting next year, it will be nearly impossible to be a partner in name only at Akin Gump Strauss Hauer & Feld.
The firm will become an all-equity partnership in 2014 and will require almost everyone who carries the title of partner to chip in a percentage of compensation to help fund firm operations. The move is expected to affect 75 partners who are currently paid on a straight income basis, Akin Gump chair Kim Koopersmith said Tuesday. In exchange, those lawyers will get more of a say in firm decisions and a chance to share in profits, though they will still have a portion of their pay guaranteed for the first several years after being promoted.
"We think it’s better to have all of our partners with a vested interest in the success of the firm," says Koopersmith, a New York–based litigator who became Akin Gump's chair in April following Bruce McLean's two-decade run in the firm's top leadership post.
There are exceptions to the new requirement. Koopersmith says that roughly 25 partners who now receive a salary—many of them former equity partners nearing the end of their careers—won't be affected. That leaves a group of largely junior partners, as well as a few laterals, being asked to make the switch. (News of the move was first reported by The Wall Street Journal.)
Beginning in January, Koopersmith says, the firm will evaluate each of the affected partners to determine what portion of their compensation they will be required to contribute. She declined to say what percentage of pay equity partners currently contribute, and would not provide a range the firm is considering for those being converted to equity partner status. The entire capital amount will be due up front—either in cash or through a bank loan—rather than deducted from paychecks over a period of time. (Koopersmith notes that while Akin Gump has relationships with several banks that offer favorable loan terms, the firm does not cover interest or offer any other incentives for those who borrow money. Partner capital collected by the firm also doesn't accrue interest.)
Koopersmith says that—without being urged to do so by outside consultants—she, McLean, and other Akin Gump leaders discussed the idea of making such a move periodically over the past several years and revisiting the subject again at the end of last year. She says the firm made the shift to align its approach to compensation with that of other two-tier firms whose partnerships are split between those paid entirely based on profits and those who receive a mix of fixed and variable income.
A 2012 American Lawyer analysis of how firms within The Am Law 200 pay nonequity partners—a group defined by the magazine as having at least half their salary guaranteed—found that the average compensation for such lawyers ranged from $100,000 to $1.53 million a year and that those covered in that range included new recruits getting guarantees as well as young partners not paid much differently than senior associates.
Over the years, firms have asked that equity partners contribute more and more capital, with the average figure rising to roughly $300,000 per attorney in 2011, according to a survey conducted by Citi Private Bank spotlighted in The American Lawyer's March cover story. While such investments can pay off at firms that are profitable and reward partners with a healthy share of earnings, as partners at Dewey & LeBoeuf, Howrey, and other recently failed firms can attest, the capital can also be swallowed up when things go bad and create financial headaches for lawyers asked to contribute capital to new firms while being pursued by banks for outstanding capital loans tied to previous firms.
Koopersmith says the Akin Gump partnership has been overwhelmingly positive about the change. Income partners were asked about the potential switch in focus groups as firm leaders weighed the decision, but only the firm's 19-member management committee officially voted on the change. Partners at the firm were told the news in a videoconference Monday afternoon, Koopersmith says. Several Akin Gump partners contacted Tuesday declined to comment.
The introduction of the new capital requirement will be accompanied by a newly unified approach to reviewing each partner's performance, Koopersmith says: "We attempt to make sure everyone’s compensation is as holistic as can be, and hopefully we'll do an even more complete analysis. Nothing was missing before, but we'll have an opportunity to do better."
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