Single-Tier or Two-Tier? A Guide for Attorneys Planning a Lateral Move

Over half of Big Law partners are currently classified as non-equity, the trend isn’t slowing down, an increasing number of firms are shifting toward the two-tier structure. According to the American Lawyer, only about 15 Am Law 100 firms remain single-tier, with many others incorporating a non-equity partner tier to enhance flexibility in hiring, retention, and compensation.

However, this doesn’t mean single-tier models will disappear. Highly influential firms like Wachtell, Lipton, Rosen & Katz continue to thrive under the single-tier structure, prioritizing quality over quantity in their partnership ranks.

When considering a lateral move, you may face the decision of whether to consider single-tier and two-tier law firms. Understanding the differences between the structures can help you when weighing the options. 

What’s the Difference Between Single-Tier and Two-Tier Firms?

At their core, single-tier and two-tier law firms differ in how they define and manage partnership roles. Here’s a breakdown of these two models:

Single-Tier Law Firms

Single-tier firms maintain a unified partnership structure. Every partner is an equity partner, sharing in both the profits and risks of the firm. Decisions are generally made collectively, fostering transparency.

Advantages

• Transparency and Equality: Uniform status among partners minimizes hierarchical differences and fosters a sense of equality.

• Reputational Strength: These firms often boast a prestigious reputation, as their structure allows them to focus on quality over quantity in their partnerships.

• Strong Culture: Fewer layers lead to clearer communication and a stronger sense of shared goals.

Challenges

• Limited Flexibility in Promotions: The lack of an intermediary partnership tier creates an "all or nothing" dynamic, which could result in higher turnover among mid-level associates.
  

• Limitations in Lateral Recruiting: Equity tiers lend themselves to a higher threshold when recruiting lateral partners. Single-tier firms may require higher portable books when considering candidates. Even if a candidate meets this threshold, junior partners who come with them as part of group can become an issue in that lateral recruiting process.

• Profit Divide: Without a non-equity tier, all equity partners share the same financial risks, which may restrict the firm's flexibility in designing innovative compensation models.

Two-Tier Law Firms

A two-tier system divides partners into two categories:

• Equity Partners: Contribute capital, share in profits, and have voting rights over major firm decisions.

• Non-Equity (Income) Partners: Receive fixed compensation (often with bonuses) but don’t share in equity or firm profits.

Advantages

• Promotional Flexibility: Firms can reward attorneys at different stages of their development, retaining talent while protecting equity resources.

• Balanced Risk: Non-equity partners don’t bear financial liabilities, making the system more sustainable for firms seeking profitability.

• Focus on Specialization: Non-equity partners can bring niche expertise or manage internal teams without the expectation of generating new business.
  

• Advantages with Lateral Recruiting: Two-tier firms tend to have more flexibility when it comes to considering lateral candidates. They can offer the title partner to candidates who may not meet the portable book threshold at a single-tier firm.
  

• Client Marketing: When it comes to building a book of business, many attorneys face a chicken and egg situation. They need a large book to become partner, but many clients only want to hire an attorney with the partner title. The income partner title allows experienced attorneys to market themselves as a partner while building the book necessary to make equity.

Challenges

• Perceived Inequality: Non-equity partners may feel undervalued if communication isn’t managed effectively.

• Underperformance Across Tiers: Poorly implemented structures can result in underperforming non-equity partners, impacting overall profitability.
  

• Ladder vs. Parking Lot Question: The income partner tier can take pressure away from firms to promote attorneys to equity. Existing equity partners may be unwilling to add to the profit sharing and the two-tier partnership can lengthen the time an attorney waits to become equity.

Key Considerations for Attorneys

1. Career Path and Ambitions

Your long-term goals should influence your choice of firm. If you’re intent on becoming an equity partner, it is important to ask about the steps to equity during the lateral hiring process. Most firms are unwilling to promise equity to a partner coming over on the income tier, but they will usually speak to the standard expectations and time frames that it can take to be put up for equity.   

2. Compensation Structure

Single-tier firms typically allocate profits among all[LT1]  partners. While this approach can reduce income disparities, it may not consistently recognize or reward top performers. Two-tier firms, however, often offer performance-based bonuses for non-equity partners, providing incentives for originations, billable hours and specialized expertise.

Many times, candidates consider profits per equity partner reported by American Lawyer when comparing firms. While this is relevant information, in two-tier firms lower profits per equity partner may signal willingness to establish a larger equity tier. This could increase the likelihood that a candidate will eventually be promoted to equity.   

3. Work-Life Balance

Two-tier partnership models provide greater flexibility for attorneys who wish to specialize or avoid the pressures of client acquisition, as non-equity partners typically have fewer responsibilities than their equity counterparts. In contrast, single-tier firms often demand more from their partners collectively but tend to promote stronger long-term autonomy and ownership within the firm.

Take Your Career Next Steps

As law firms evolve, so do the opportunities available to attorneys. Whether you’re drawn to the prestige of a single-tier firm or the flexibility of a two-tier model, the key is to choose a firm that aligns with your values and long-term career goals.

If you’re considering a lateral move, contact the Foxstone Recruiting team to learn more about firms that align with your goals and priorities.