What are the types of law firm partnership?

Traditionally, law firms have been run by partnerships – a group of senior lawyers who put their own money into the firm in return for a share of the profits. However, in the modern legal profession there are many different types of partnership, with huge variety in terms of how law firms are structured.

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The type of partnership at a law firm should be an important factor for any aspiring lawyer. It’ll have an impact on the career paths open to you and is also a good indicator of what a firm’s culture – and day-to-day life in the office – will be like. From an applicant’s perspective, understanding how a law firm is structured can ultimately help you to impress in your application and at interview.

The legal profession has a reputation for being slow to embrace change, which, in the past, was reflected by law firms’ widespread use of the traditional ‘lockstep’ partnership model. However, increasing demands for better value for money for clients, greater competition for work, competition to attract and retain talent, as well as the influence of US law firms, which work very differently, have seen organisations modify or depart from this approach. As such, the number of law firms that operate a fully ‘lockstep’ pay model has grown much smaller over the years. Many of the changes came after top law firms were losing talent to rivals that were offering more merit-based pay models (there’s more on this below).  

In this article, we explain the two broadly opposed types of law firm partnership and explore some variations within each.

Lockstep

While the lockstep model is widely used to some extent among law firms in both the UK and the US, its prevalence has declined over the years, with Slaughter and May, reportedly, the only major UK law firm still operating a ‘pure’ traditional lockstep model.

In the traditional lockstep model, equity partners’ profit shares increase in line with their seniority within the firm (ie, how long they’ve worked there).

This means that all equity partners who joined the firm in the same year will be paid the same, all seventh-year associates are paid the same and so on, due to automatic annual pay increases.

Strictly speaking, the lockstep model applies only to equity partners, but some lockstep firms apply the system to salaried partners and associates too.

Pros

The lockstep model creates collegiality, stability and cohesion, as well as loyalty, by placing emphasis on group achievement and teamwork, rather than competition between lawyers at the same firm.

“A lockstep model provides certainty in terms of partner progression,” explains a partner at an international law firm. “A partner will know what their remuneration will be depending on their seniority at the firm. The pre-established criteria for remuneration also arguably ensures greater transparency and emphasises the sense of sharing and support between partners – and the gains and benefits from diversifying opportunities and spreading risk. In theory, a lockstep model should create a more collegiate culture in which lawyers pursue the firm’s best interests rather than their own, while also rewarding longevity and loyalty, affording greater security to partners.”

Cons

The lockstep model fails to link reward with individual performance, which critics believe encourages inefficiency and unfair situations where lesser performers can ‘coast’ on the greater contributions of others.

“Firms using a traditional lockstep system lack the flexibility to deal with underperforming partners as well as high-performing partners irrespective of their seniority,” a partner explains.

 “Lockstep assumes that senior partners generate more for the business than junior partners and fails to properly account for the speedy progress of higher performing partners.”

Modified lockstep – merit-based pay

While magic circle law firm Slaughter and May has continued to use a lockstep model, many law firms have moved away from the traditional model. Let’s look at magic circle firm Linklaters LLP as an example – in recent years, the firm has modified its lockstep arrangements to include elements of performance-based remuneration for partners who make an “exceptional contribution”. In 2024, Law.Com reported on the firm’s plans to introduce a three-gate lockstep model to see it better able to reward younger top performers within the UK-based law firm.

London-based law firms have been facing increasing pressure to adapt their pay models due to competition from US rivals. It’s crucial that law firms pay attention to what’s happening in the market and what their competitors are doing given that the war for talent is very much in its throes.

In many cases firms have a bonus system as an extra form of incentive, although even this may be based on the firm’s overall performance that year, rather than the performance of the individual. Nonetheless, lockstep proponents argue that the reward of achieving partnership is more than enough of an incentive for good performance among the types of people that they employ.

Crucially, whether you’re in a lockstep or merit-based lockstep system can have a direct effect on your salary and working environment when you qualify as a solicitor. Firms’ reward systems vary, but firms including Addleshaw Goddard, Ashurst LLP, CMS and Stephenson Hardwood LLP have all shifted their remuneration models for associates from a post-qualification experience system to merit-based pay.

In fact, most recently Addleshaw Goddard partners voted to raise the ceiling of the firm’s compensation model by one-third in a bid to attract and retain partner talent, with lateral hiring on the rise. Its ‘points ladder’ system will be extended, with the new figure for the top of equity being around £3 million, according to a source close to the firm. Andrew Johnston, managing partner, explained that the extension creates “headroom to reward those partners who deliver the highest levels of performance and who are making a very material contribution to our business”.

Elsewhere, ahead of its merger, many raised questions about the pay model A&O Shearman would use. In October 2024, the newly merged firm said it’ll be using an all-equity partnership and operating on a three-level modified lockstep pay model.

As one law firm partner explains: “Arrangements depend on the culture of the firm and the type of people it’s trying to attract to the partnership, which will of course also be affected by what competitors are doing. A key benefit of a merit-based system is that it affords greater flexibility to allow partners to move up and down within the reward structure. Such a system enables partners looking to retire from their roles in helping to run the firm to continue to fit within the structure and remain an important part of the firm, rather than being forced out due to the disparity between what they can deliver as fee earners and what they draw. In this way, a merit-based system can create a more elegant yet proportionate structure.”

Eat what you kill

This is a colourful phrase used to describe a pay model that’s the opposite of the traditional lockstep system.

Law firms with an ‘eat-what-you-kill’ approach base their lawyers’ compensation on the revenue that each individual generates. Often, this entails the use of a formula to account for the firm’s overheads, with partners sharing the costs of running the firm, but then splitting the remaining profits based on performance.

In this model, a firm may be more accurately described as a costs-sharing arrangement between individuals rather than a partnership.

Pros

The eat-what-you-kill system certainly rewards high-achieving individuals and keeps them happy, while it may also suit firms that hire a lot of partners laterally, as such partnerships won’t have developed organically, with the accompanying working relationships and trust that this entails. It also places all the emphasis on performance, which should, in theory, ensure that all the lawyers at a firm work hard to pull their weight, thus boosting the financial health of the firm as well as its reputation among clients.

Not everyone is a team player, so an eat-what-you-kill model should get the best out of lawyers who happen to be competitive and individualistic. A purely merit-based model can also benefit a firm’s cashflow, as it incentivises partners to ensure that clients pay up in a timely manner – after all, the partners don’t get paid until they’ve received a client’s fee.

Cons

The system may work to the detriment of a firm’s cohesion and long-term stability. Purely merit-based models have been criticised as too volatile, with a good example being the collapse of Dewey & Leboeuf in 2012, which operated a pure merit-based partner remuneration model.

Eat what you kill doesn’t account for essential functions such as referrals between a firm’s lawyers, as there’s no incentive to encourage this behaviour. It also punishes those lawyers who engage in vital work for the development of the firm, such as those who take up management or training roles.

Two-tier partnerships

This model is fairly common among law firms. As the name suggests, it sees two types of partnership – equity partners and non-equity partners. Non-equity partners don’t have to buy-in to the firm, so won’t have an ownership stake in the business, while equity partners buy-in to own a portion of the firm. Rather than being paid based on a law firm’s profits, non-equity partners often get a salary as their compensation.

Pros

A two-tier partnership model can offer several benefits, including greater financial flexibility for the law firm and a more achievable path to partnership for those senior lawyers who aren’t ready to engage in full-equity partnership. Among other things, it also allows for easier lateral hiring that doesn’t immediately offer equity.

Cons

As you’d expect, the two-tier model might create divisions between equity and non-equity partners, leaving some non-equity partners feeling undervalued, which could result in retention issues.

Smaller partnerships – the ‘monarch’ structure

The monarch system is used by firms in which one lawyer has clear seniority over all the others and sets the level of remuneration for all other lawyers at that firm each year. This suits smaller partnerships where one lawyer is the original and main generator of business, which can suit the firm’s other lawyers because they earn more under this system than they would if relying only on the work they bring in themselves.

Pros

The monarch system can work well when the senior lawyer (or monarch) is a reasonable and benevolent leader – good management skills are therefore important. When income is shared fairly and rewards and expectations are made clear, the monarch model can be a viable way of operating for smaller firms.

Cons

If one or more of a firm’s junior lawyers develops into a rainmaker in their own right, the model will come under strain. This can lead to departures from the firm, particularly if the original senior lawyer isn’t willing to share the throne, which may put the long-term profitability of the firm at risk.

Looking ahead: are partnerships giving way to the stock market?

Listing on the London Stock Exchange (LSE) became an attractive corporate alternative for large firms in past years. In 2015 Gateley Legal became the first firm to list on the LSE, with DWF Group Limited following suit in 2019. However, in 2023 DWF delisted from the LSE, with private equity firm Inflexion completing the take private of the firm in October 2023.

Regional group Knights Solicitors LLP is also among those to list. The firm, which describes itself as “the UK’s largest commercial legal services business outside London”, has now made around 26 acquisitions since its initial public offering (IPO) in 2018, with investors powering the group’s rapid expansion. This includes a £30 million purchase of IBB Law, which expanded the firm’s reach into the South East. More recently, it announced a £16.6 million deal for Birkett Long LLP, as well as the acquisition of Rix & Kay and Cardiff law firm Le Gros Solicitors.

That said, few firms have actually listed on the stock exchange and it’s clear that there isn’t going to be a race to list, with law firm management keen to maintain control. James Knight, founder and chief executive of Keystone Law, warned that IPOs aren’t without risk, noting that “unless you’re going to build up and become much bigger and more profitable than you were before, then you’ve basically sold the family silver”. He added that a firm’s main asset is its lawyers which leaves the firm vulnerable, particularly if partners leave. Investment analyst at AJ Bell Dan Coatsworth said that investors are “no longer interested” in law firms.

Why should you consider firms’ partnership structures when applying?

The type of partnership a law firm has is an important factor to consider when making a training contract application. “The form of remuneration model can impact the culture of the firm and therefore the experience of trainees and associates,” explains a law firm partner. “If candidates want to succeed at a firm and stay there in the long term, they'll need to be prepared to embrace the culture because it’ll determine how they progress. Candidates should consider which culture will meet their career aspirations.”

A firm’s choice of reward structure could also have an impact on the quality of training that trainees receive. “The nature of the particular model could dictate partner behaviour and the work more junior members are going to get,” warns one partner. “Working as a junior at a firm that rewards a more individual approach may necessitate getting on the right side of the right partners to get the work you want. That must be true to some extent in any firm, but I imagine it’s more acute in ‘eat-what-you-kill’ practices. It’d probably also impact on performance reviews and therefore qualification and promotion prospects. The hours expectation on juniors is always higher at an ‘eat-what-you-kill’ firm, as the associates are – to a degree – commodities for the partner to drive hard to earn more and get rewarded more. That isn’t necessarily a negative but is an example of how the remuneration system will have a direct affect”.

Make sure you take a firm’s partnership model into account when deciding which type of career path and day-to-day working atmosphere is best for you.

Olivia Thorne (she/her) is acting deputy head of content and events at LawCareers.Net