Patrick Dunican, managing partner of Gibbons in Newark, NJ. (Carmen Natale)
When Patrick Dunican Jr. became Gibbons’ first nonequity partner in 1999, he was less than flattered.
“I can tell you, I was not happy,” said Dunican, who got the promotion after two years of managing the firm’s young New York office as an associate. “I felt like I had run down the entire football field and was about the cross into the end zone, and it got moved 10 yards.”
Things worked out for Dunican, who made equity partner the next year and has been managing the Newark firm since 2004. But the typical experience is different for the growing number of nonequity partners—who generally earn less and often are called “income partners” because they are compensated mainly by salary instead of a share of firm profit.
In New Jersey, the proportion of nonequity partners has grown every year, for at least the past eight years, at the 20 firms and branches ranked in the Law Journal‘s most recent annual survey of top-grossing firms.
Last year, those firms’ 668 non-equity partners made up 44.8 percent of total partner ranks.
In 2006—the farthest back data was available for the same 20 firms—there were 354 nonequity partners, accounting for 29.1 percent of total partner ranks (1,218).
The proportion increased incrementally each year. Nonequity partners accounted for 34.4 percent of partner ranks in 2007; 35.6 percent in 2008; 37.5 percent in 2009; 39.9 percent in 2010; 40.5 percent in 2011; and 42.7 percent in 2012.
The firms with the highest proportion of nonequity partners were Gibbons and Morristown’s McElroy Deutsch Mulvaney & Carpenter, which each had about 2.5 nonequity partners for each equity partner. At Greenberg Traurig’s Florham Park office, the ratio was about 2-to-1. In all, eight firms had more nonequity than equity partners.
The trend mirrors one that’s occurring nationally, according to a recent survey by The American Lawyer, a sibling publication. It found:
• 20 years ago, most of the 100 top-grossing firms (AmLaw 100) had only one partnership tier, while now there are only 17 such firms.
• The average number of nonequity partners in 1994 was 19; now it’s 141.
• In 1994, three firms were nonequity-majority firms; now, there are 31 such firms.
Swelling of the nonequity tier is at least partly attributable to long stays at that level—it’s a holding pen for associates whom the firm wants to reward without conferring ownership rights, as well as laterals who come over without fat books of business, according to David Garber, president of recruiting firm Princeton Legal Search Group.
Some firms even have several layers of nonequity partnership, he said.
“The path to equity partner is much more difficult,” Garber said. “It’s simply not enough to be an exceptional lawyer….You have this whole pool of lawyers who are very fine lawyers but aren’t securing business.”
The nonequity tier also is home to specialists, such as tax attorneys, whose skills are in demand and necessary at a full-service firm, but who aren’t good at—or aren’t in practices that lend themselves to—business development.
Stephen Vajtay, managing partner of Newark’s McCarter & English, called nonequity partnership an “appropriate tool and structure for the times that we’re living in”—times in which there’s more competition than ever for client business.
McCarter & English, the state’s most populous homegrown firm, had 105 total nonequity partners last year, accounting for 55.6 percent of its total partner ranks. The firm began converting to a two-tier system about 20 years ago, Vajtay said.
“Your talented younger lawyers…deserve the chance to show the firm what they’re made of and what they can do with a partner title,” Vajtay said. “The way we see it, we’re giving them an opportunity to use the badge of partnership.”
Many attorneys want to wield the title, and staffing more partners can provide more leverage and thus create a “competitive advantage” because clients want to see partners working on their matters, Vajtay said.
Vajtay, like Garber, said promotion to equity partner now hinges on “proven business-development ability.”
The duration of nonequity partnership is indefinite, and there’s no guarantee of ascension.
The firm’s executive committee typically considers an attorney’s prior three years when considering him or her for equity partnership. Aside from fees generated and business-origination credits, the committee also looks at client relationships and billing realization rates—an attorney who bills $500 an hour and collects only half won’t have a strong case for ownership rights, Vajtay said.
“That says something about the type of clients you’re working with,” he said. “That says something about your efficiency.”
Dunican agreed that “the logic is, you have to have a demonstrated track record of bringing in business.”
“I admire these firms” that still use a one-tier structure, he said. “But those firms don’t necessarily have to be entrepreneurial. They don’t have to be out there knocking on doors.”
Though the two-tier trend well predates the recession, Dunican called the lesser demand for legal services “the primary driving factor in the growth of the nonequity class of partner.”
The two-tier structure has been criticized by some and can be a source of frustration for those who feel stuck, but Garber said, “I don’t think lawyers view it as second-class citizenship.”
“Like any organization, there’s a hierarchy,” he added. “The rules of the game have changed.”
Vajtay acknowledged that “there are some who are disconcerted by the income partner title,” but the same consternation existed when there was one partner tier and associates weren’t elevated as quickly as they would’ve liked.
“There were those that griped even then,” he said. “People will gripe—it’s human nature.”
Still, at both firms, those in the nonequity tier are considered full partners, and it’s not unusual for a few nonequity partners to earn more than some of the less-established equity partners, the managing partners said. And both claimed equity partnership isn’t on everyone’s wish list because some don’t want the liability of capital contributions to the firm and the uncertainty of their take-home in up-and-down years.
Some New Jersey firms have bucked the trend or at least aren’t dominated by nonequity partners.
Wolff & Samson of West Orange; Wilentz, Goldman & Spitzer of Woodbridge; and Day Pitney’s Parsippany office each reported staffing dozens of equity partners but no non-equity partners. At Riker Danzig Scherer Hyland & Perretti of Morristown, only one out of every 10 partners was in the nonequity tier. In all, 12 of the 20 firms and branches had more equity than nonequity partners.
Wilentz once had a two-tier structure but went back to an equity-only structure, said managing partner Brian Molloy. “I think it breeds collegiality, and we have no plans to change that.”
“There’s no holding pattern,” he said. “There’s no stepping stone.”
Business generation is taken into account in making equity partners, but that’s always been a consideration, and it’s “not dispositive,” Molloy said.
He added that title doesn’t make or break a lawyer’s origination ability. “People who can do it have shown it even as an associate.”
Despite those holdout firms, the trend toward nonequity partnership shows no signs of reversing.
“Those days are gone,” said Vajtay of the days when seniority was the biggest factor in making equity partner. “Now, a partner has to earn his wings every day.”
“If you can’t make peace with that, it’s very difficult to have a successful career as a law firm partner in 2014.” •
Contact the reporter at email@example.com.