What's Your Firm's Real New Partner Buy-In Amount?

Source: The Marc Rosenberg Blog

The following includes excerpts, reproduced with permission, from a blog entry by Marc Rosenberg.

Buy-in by [a] new partner [is] almost always paid over a period of years via reduction of salary and/or bonus. In cases where the buy-in is a fixed amount, say $100,000, it's clear that the buy-in is $100,000.

But in the past year or so, I've seen a few firms disguise the true buy-in amount; I'm sure there are others doing the same. Here are two examples:

Firm #1 required new partners to pay $20,000 immediately upon becoming partner. The remainder of the buy-in was paid in over a period of years via payroll reductions until the partner group deemed that the new partner had paid in a “sufficient amount,” usually $200K to $300K. The level of performance of the partner was one factor that determined when the buy-in was deemed to be complete. All very vague and mysterious. When this firm responds to MAP surveys requesting the amount of a new-partner buy-in, [it] incorrectly [responds] with $20,000, but the true number is in the $200,000 to $300,000 range.

Firm #2 didn't require [its] new partners to pay any part of their buy-in immediately. Instead, the entire buy-in is paid in over a period of years via payroll reductions until the partner's capital account equals [his or her] annual compensation, usually $200,000 to $300,000. When this firm responds to MAP surveys requesting the amount of a new-partner buy-in, [it] incorrectly [reports] zero but the true number is in the $200,000 to 300,000 range.

So, the message here is that in determining a new partner's buy-in, it includes not only the down-payment but [also] the amounts to be withheld from the new partners' compensation over a period of years.

For the complete entry, read “How Firms Disguise Their New-Partner Buy-In.”

From The Marc Rosenberg Blog, January 4, 2016, blog.rosenbergassoc.com.