Have you often wondered, what does a partner earn? This article sheds light on what does a partner earn!
What does a partner earn, depends on many different factors.
Not every partner is created equal in a partnership. What they earn each year really depends on the following things:
- Their formal status within the partnership, i.e. are they a salaried partner, fixed share equity partner or full equity partner?
- How partners are remunerated within the partnership agreement
- How well the firm has performed that year.
Salaried partners are still employed and paid a salary
Salaried partners are still employed by their firm. Typically they are paid a fixed salary with a bonus on top. Their bonus is normally reliant on their performance AND their firm’s performance. A salaried partner will normally be on a higher salary than a director or senior associate in the firm. Very often salaried partners are now given titles such as “Executive Director” (this happens in EY) or “Legal Director” (this role is becoming more and more common in law firms, e.g. Taylor Wessing, TLT Solicitors, HFW).
Fixed share equity and full equity partners are self employed and not paid a salary
This may be a shock to you, but when you get admitted to the partnership as an equity partner (of whatever description) you need to formally resign and become self employed. You can see, answering the question, ‘what does a partner earn’ becomes rather difficult to answer now! Equity partners earn their money from the profits of the firm. They ‘draw down’ on the profits of the firm in order to generate an income from the firm. Fixed share equity partners are often given a guaranteed level of drawings in lieu of a salary and topped up with a bonus. This bonus is often related as much to the firm’s performance as it is to the individual’s performance. As ever, the level of bonus a fixed share equity partner receives is very subjective! It is not uncommon for newly admitted fixed share equity partners to realise that if they don’t get a decent bonus they are taking home less than when they were employed by the firm. (When you factor in things like benefits as well as pay)
Points often determine your share of the partnership profits
Most partnerships tend to use a points system to allocate profits to their equity partners. As you get more senior in the partnership you will be allocated more points. These points tend to tally up to the amount of equity you own in the firm. The more points you have, the greater your share of the firm’s profits. Typically most firms will have a maximum level of points you can be allocated. When you get to this point you are often seen to have full equity status as a partner. Once again how much full equity partners get paid is still very reliant on how well the firm has done in the previous year. Many firms have partner remuneration schemes where a certain percentage of the firm’s profits are held back to be distributed purely amongst the full equity partners. Once again the amount an individual receives will depend on how well they have been seen to have performed.
Where can I found out the average profit distributed by partner?
If your firm is an LLP or LLC they need to declare in their annual reports their average profit distributed by partner. So for example PwC in sept 2016 in the UK paid out before tax £706,000 on average to each partner. When you see a figure such as this you need to be aware of the following:
- partners will have a hefty tax bill to pay, often 40-50% of this figure, so the money they receive in their bank account will be much less
- fixed share partners will be receiving significantly less than this figure
- areas of the business which contribute super profits, e.g. consulting, corporate finance, tax consulting will typically take a bigger slice of the pot than areas such as audit