Lockstep or eat what you kill: how law partners split profits
At many British law firms, partners climb a fixed ladder of points with every year of service, whoever brought in the clients. Many American firms instead reward each partner for the business they personally generated, a system bluntly nicknamed eat what you kill. When Clifford Chance merged with Rogers and Wells, that clash of cultures was blamed for much of the friction.
Under lockstep, a newcomer starts with a set number of points and gains more over time until hitting a ceiling, so firms describe themselves by the climb, say a seven-year or a ten-year lockstep. The origination model, rarely seen outside law, gives each partner a share of profits up to a limit, then hands any surplus to whoever originated the work. Not every partner even owns a slice. An equity partner is a part-owner entitled to a share of distributable profit, while a salaried partner earns a wage and perhaps a bonus, with no ownership at all, yet can still be liable for the firm's debts if presented to the world as a partner.
Pooling capital and risk is an old idea. Medieval Italian merchant bankers favoured the commenda, which offered investors a reward for lending without technically charging interest, a way around the Church's usury laws. The Middle East had comparable arrangements called qirad and mudaraba, and the Mongols developed ortoq partnerships, funded with coins, paper money, ingots or goods, including ventures with Marco Polo's family. One 2006 article credits the Prato merchant Francesco di Marco Datini with the first true partnership, in 1383.
Cooperation took other forms as well. In the fifteenth century, ships of the Hanseatic League sailing between Hamburg and Gdansk carried freight for fellow member cities alongside their own, saving time and money for everyone involved.
Under common law, general partners manage the business and answer personally for all its debts. The nineteenth century brought the limited partnership, in which some members give up any say in management in return for liability capped at what they invested; silent partners often prefer this. A partnership needs an agreement, though under common law it need not be written down, and since no contract can foresee everything, trust and clear communication carry much of the load.
Source: Partnership
