More and more equity partners of law firms ask us whether their income levels are appropriate and how they can objectively compare them to that of others.
In fact, it is interesting to observe how broad the range of equity partner remuneration at business law firms in Europe is. Only taking into account business law firms that have an established reputation for quality, the annual remuneration of “partners” at these firms in Europe may vary between 150 K € to 2.5 mio €. In other words, some partners at quality law firms are making more than 15 times more than others, and this even in the same country. While the above range takes into account the extremes, we still see a very broad range (from 1 to 5 times) when we filter out the edges and only look at the regular levels of partner income. Although we have found arguments to justify a degree of difference in remuneration levels of partners, I have never in my career been able to explain this difference on the basis of inherent quality differences between the lawyers.
So why is this ? The easy answer is that firms play in different leagues, resulting in different fee rates and different levels of net income. Other factors that will influence are the average billable hours and the leverage of partner to associates. Finally, general cost factors will play a role.
However, another important aspect that we see is the percentage of annual fees that is typically available in a firm for equity partner profit distribution. This figure is rather different from law firm to law firm. In typical business law firms this range may go from 30 % up to 60 % of annual fees.
In performing law firms, the lower percentage will be present in firms that are investing heavily in building their brand name and focus on generating much more work across offices and borders. It will also be true for firms investing in institutional clients. Typically, these will be firms where the partner generates a substantial part of his or her annual fees from work that has always been there or that is being generated by colleagues in the firm.
The higher percentage will be present in firms that have entrepreneurial partners who seek a lot of the annual fees based on their reputation and hard work, collectively or more individually. It are firms that will have invested less in their brand names and institutional clients.
Of course, the above are generalizations and many exceptions do exist, so one has to be careful before concluding. It does however provide some guidance in answering the question whether you are being well paid.
You could therefore apply the following simplified test.
Step 1 : Is my annual total gross remuneration as an equity partner anything between 40 to 50 % of my annual fees ? If yes, you are within a normal band, be it either on the low or higher end.
Step 2 : If your annual total gross remuneration is below 40 % , you will want to see that your firm is making successful investments in building and/or maintaining a strong international brand and that a substantial part of your business is being generated because of that or is being referred to you.
Step 3 : In case the conclusion following step 2 is negative, then you may have a relevant problem with either your firm being underperforming and/or the sharing of profits not being entirely fair. You will want to investigate further and see how matters may evolve for you, because they certainly should.