As Freshfields reportedly adopts an approach favoured by leading US firms, Legal Cheek explores the key differences behind this model and the motivations driving firms to embrace it
Magic Circle law firm Freshfields has reportedly added a non-equity partner tier, following in the footsteps of many top US outfits in London.
The move comes after speculation first surfaced last year. But why are so many firms adopting this model?
Traditionally, making partner at a law firm came with a significant set of benefits and responsibilities. Chief among these was entitlement to a share of the firm’s profits. The average amount earned by each partner is commonly referred to as profit per equity partner (PEP).
However, the logic follows that if you receive a share of the profits, you are also expected to help generate them. In practice, this means bringing in new business for the firm. That is why you often hear partners talking about pitching to clients and developing relationships, as they are ultimately seeking to grow the firm’s profits and, in turn, their share of them.
So what is a non-equity partner?
Unlike an equity partner, who takes a slice of the profits, a non-equity partner typically receives a set salary and possibly a bonus, rather than a share of the firm’s profits. Equity partners will therefore usually earn significantly more than salaried partners, with the Legal Cheek Firms Most List showing that some firms’ profit per equity partner (PEP) exceeds £5 million a year. It is also worth noting that this figure is only an average, with some top partners at leading firms earning two or even three times as much.
According to Law.com (£), Freshfields’ introduction of a non-equity partner tier forms part of a broader push to improve profitability. The firm declined to comment when approached by Legal Cheek.
However, it is far from the first firm to take this approach. Kirkland & Ellis is perhaps the most prominent example, and a number of other US firms have followed suit in the past five years, including Debevoise & Plimpton and Paul Weiss.
As to why this is becoming more prevalent across the City, there are many reasons as to why a firm would want to introduce a non-equity tier.
As the term PEP suggests, equity partners divide a firm’s profits among themselves, meaning that the larger the equity pool becomes, the more thinly those profits are spread. Introducing a non-equity tier allows firms to increase the number of partners in title while keeping the equity circle, and therefore the profit share, tightly controlled.
The shift also reflects the realities of an increasingly competitive lateral market. Partner defections between firms are now commonplace, particularly in the City, and retaining top performers requires more than a traditional career ladder. By offering partnership status without immediately granting equity, firms gain flexibility to reward and retain lawyers who might otherwise be tempted to move.
There is a clear commercial logic at play as well. Work overseen by a partner commands higher billing rates than work led by a senior associate, regardless of whether that partner holds equity, so expanding the non-equity ranks can drive revenue growth without affecting the equity profit pool.
Critics argue that this development weakens the traditional concept of partnership, which has historically rested on shared ownership and collective responsibility rather than title alone.
The model has become standard among large US firms, and Freshfields has been building its US presence for several years. In a market where, as of 2024, 86 out of 100 of the top-grossing US firms operate some form of non-equity tier, resisting that structure may place a firm at a competitive disadvantage.
Profitability provides further context. The most successful US firms consistently report higher profits than even the strongest UK Magic Circle counterparts, and Freshfields itself recorded a slip in profits last year despite rising revenues. Viewed against its US ambitions, strengthening profit PEP through the introduction of a non-equity tier appears less a departure from tradition and more a strategic play.