Equity vs. No-Equity Partners: What's the Difference?

Source: The Managing Partner Advisor

The following includes excerpts, reproduced with permission, from an article by Gary Adamson.

Most firms are faced with the dilemma of keeping long-term managers who are major contributors to the firm but for whatever reason are not ready to be equity partners (or who perhaps never will have what it takes to be equity partners). A relatively new approach for medium to smaller sized firms is the no-equity partner position.

Here is an outline of what the position looks like, how it differs from the normal equity partner spot, and some considerations to implement it in your firm:

• The difference between no-equity and equity is internal only. From the perception of the public and clients, this is a partner position.
• No-equity partners function just like equity partners in terms of serving clients. The differences are typically how you pay them and other partner benefits like buyout and retirement.
• Most firms utilize a different compensation plan for no-equity partners. I normally see a base salary that is between a senior manager and an equity partner with a bonus potential based on some percentage of that salary or a separate pool.
• No-equity partners have either a very small equity contribution or none at all, and they do not typically participate in the firm's equity partner buy out or deferred comp plan. They do participate in the firm's qualified pension plan, just not in the equity partner buy out.
• From the perspective of firm governance, no-equity partners should participate in partner meetings, including firm retreats. Normally they will not be eligible for service on the firm's executive board or management committee. They will be able to vote their shares if they hold any.

For the complete entry, read "How to Create a No-Equity Partner Position in Your Firm."

From The Managing Partner Advisor, the newsletter of Gary Adamson, CEO of Adamson Advisory, November 2012, http://adamsonadvisory.com.