The Lawyer (UK) is one of those publications you ignore
to your impoverishment: Somewhat like the role the Financial
Times has vis-a-vis The Wall Street Journal, or The Economist vis-a-vis
Business Week, The Lawyer provides a refreshing, candid,
often cheeky, Brit view of BigLaw.
A few weeks ago I noted their release of The UK 100, roughly coincident
with The American Lawyer’s release of the AmLaw 100, but
today I want you to attend to an accompanying story prompted by
this problem:
"Every year, when we put together The Lawyer UK 100 Annual
Report, we get the same refrain: how can you compare [PPP, or profits
per partner, among] firms that have completely different equity
structures? Partners from firms with all, or mostly all, equity
partners complain that they are not being judged fairly. These
firms are constantly frustrated at what they see as manipulation
of the figures."
Game the numbers?! (Did I say that?) Heaven forfend. But
of course the annual PPP bakeoff has become one of the more celebrated
steeplechases of the year, and high stakes bring, understandably,
strenuous efforts to perform.
Welcome, then, to salutary antidote: Average Earnings Per
Partner (EPP), or, roughly, total firm income divided by all partners,
equity and non-equity alike. Actually, it’s a bit more complex
or subtle than that. Since what non-equity partners take
home is, by definition, not a strict function of a firm’s profits, The
Lawyer takes (a) the total net profits distributed to equity
partners, and adds to that (b) the figure arrived at by multiplying
the total number of non-equity partners by those "partners’" average
annual take-home (which the firms were evidently willing to provide);
and finally (c) divide by the global number of all partners, equity
and non-equity alike.
Just what do non-equity partners earn? Typically, a salary
plus a small percentage of the firm’s profits, and often a bonus
on top of that—which may reflect, for example, a cost-of-living
allowance that in London is higher than it would be in, say, the
Midlands.
The resulting table of selected results is, to my mind, utterly
fascinating, and worthy of many minutes of scrutiny. Not
only do they calculate the new EPP figures for many firms, but
they also calculate a "new" profit margin which adds back to total
reported income the earnings of all non-equity partners. Not
surprisingly, this boosts the margin almost across the board, often
to Google-like territory. Just for example, DLA Piper’s margin
jumps from 22% to 41.4%, and Clifford Chance’s from 27% to nearly
34%.
Is EPP, then, ever going to supplant PPP as the Holy Grail? Of
course not. Nor should it—after all, the equity partners
put up the capital, take the risk, and at the end of the day hold
the keys to the kingdom. But for insight into how firms leverage
themselves and distribute the spoils, it can’t be beat.
