Law Firms
Reed Smith Will Ask Nonequity Partners to Pony Up Possibly 15% of Pay
Posted Nov 16, 2009 7:50 AM CST
By Debra Cassens Weiss
Reed Smith will give its nonequity partners a choice: Pony up a percentage of your salary or lose your partnership status.
The firm will likely ask for a contribution of 15 percent of base pay, the American Lawyer reports. The firm has about 300 nonequity partners who can opt to pay now or over the next few years, earning the title of “fixed share partners.”
Reed Smith chairman Gregory Jordan told the American Lawyer that the move isn’t designed simply to add cash to the firm’s coffers or to cull nonequity partners. “The reality is we are having a very strong year," he said.
Jordan said some nonequity partners outside the United States already have a financial stake in the firm, and the change will bring consistency to the nonequity ranks. "It's about not just saying you're a partner, but actually being one," Jordan told the American Lawyer. "It means something. It revolves around risk-sharing in the business."
The story says the move “has unnerved a chunk of the nonequity partner ranks.”
Reed Smith announced earlier this month that it will cut billing rates and pay by 20 percent for 51 new associates joining the firm’s U.S. offices in January. New starting salaries will range from $130,000 in major markets to $110,000 in Pittsburgh.
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Comments
B. McLeod
Nov 16, 2009 8:32 AM CST
Heh. Some “status.”
AndytheLawyer
Nov 16, 2009 10:47 AM CST
Risk-sharing? fine. How about reqard sharing? Under the new arrangement will Reed Smith non-equity partners be entitles to a share of the profits against their draws, or will they just continue to draw salaries?
Looks to me like Reed Smith’s management is just squeezing the non-equity partners in a private and sensitive place to generate more cash flow for the equity partners’ benefit.
Dave
Nov 16, 2009 11:56 AM CST
I’m not a corporate law lawyer and I’m not an economist. But isn’t “equity” something like “capital” and isn’t “money” “capital” too? If so, aren’t these kickbacks simply putting in equity but not getting the status? At least one Reed Smith predecessor “deequitized” partners by giving them their money back. So is this different from “requitizing” by saying “give back the money we gave back to you”?
tim
Nov 16, 2009 12:24 PM CST
Is this a sign of cashflow problems at Reed Smith? Do we have another HellerEhrman collapse coming on soon?
B. McLeod
Nov 16, 2009 12:38 PM CST
Good question, Tim. In my opinion, cash calls on the “nonequity” “partners” is the handwriting on the wall. The smart ones will be packing their parachutes.
Strong?
Nov 16, 2009 2:05 PM CST
Storng year, so nonequity partners have to pay… am I reading it correctly? I agree with Tim and McLeod, time to pack up.
AndytheLawyer
Nov 20, 2009 8:47 AM CST
If this sprads, there will be a profession-wide ush of nonequity partners seeking promotion to associate status.
Mick
Nov 20, 2009 9:14 AM CST
At my firm, when we have a “strong” year, we give healthy bonuses to our non-equities. Since non-equities are usually solid contributors to firm profits, to ask them to pay back in a strong year would be a mistake. What’s next, in a really strong year, we ask the associates, paralegals, secretaries and mail and fax room staff to pay something back so that they have a financial stake in the firm? Bizarre.
Mikey
Nov 20, 2009 10:13 AM CST
Yeah, I don’t get this either. “Non-equity” partner, by its very definition, means you don’t have to contribute capital. I guess you can label it whatever you want, a la Geroge Orwell, but these partners would clearly no longer be “non-equity” partners. Also by definition, if they have supplied “equity” to the firm, then they are entitled to receive return on that equity. Clearly a cash grab by a firm in trouble.
Exfactor
Nov 20, 2009 10:27 AM CST
This is tricky legally. Most states have laws forbidding employees from being forced to give kickbacks. Calling someone a “partner” does not make them a partner—a court could find that a non-equity “partner” is an “employee” for purposes of enforcement of employment laws, including anti-kickback statutes. RS seems to be giving non-equity partners a vote to elect someone to the firm’s management committee, which is a strong step towards “partner” status, but it would by no means be dispositive in a hypothetical lawsuit where a non-equity partner claims he or she was in fact an “employee” forced to pay what he or she claims was a “kickback.”
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