• Law firms are increasingly using de-equitizations to preserve profits and manage equity ranks.

• A shift toward two-tier partnership models is likely to change the roles of nonequity partners and counsel.

• Economic pressures and rising profitability targets are driving stricter performance standards for partners.

De-equitizations—where partners are moved from equity to nonequity status or demoted to counsel—are becoming a more common tool for law firms managing profitability. Multiple Am Law 100, midsize, and regional firms have reduced their equity tiers in recent months, driven by financial management strategies and competitive pressures, according to a Law.com report.

The trend is expected to persist through 2025 as firms strive to maintain high profit-per-equity-partner (PEP) figures. 

For example, Polsinelli reported a 15% decline in its equity partner ranks in 2024, coinciding with a 31% rise in PEP. That was partly a result of “some de-equitizations and retirements” in the last year, according to the firm.

Financial Management and Equity

David Nicol, U.S. head of recruiting firm Marsden, described de-equitization as “sound financial management” for firms aiming to meet ambitious revenue and profitability targets. 

• Moving underperforming partners out of the equity tier is a way to protect partnership standards and align compensation with contributions.

• “I expect de-equitizations will continue in 2025 until the differentiation between the nonequity partner and counsel titles is cleared up,” said Nicol.

Firms are also becoming more selective in promoting attorneys to equity status. “This trend isn’t over,” Major, Lindsey & Africa recruiter Kate Reder Sheikh said of de-equitizations. 

• “I think it will continue, at least in a trickle, if not a wave,” due to the desire to save and increase profits. “It's a way for firms to save a lot of money," she said.

• Sheikh added that “2025 is shaping up to likely be a busy year at firms, [but] even given that, firms will forever try to protect their profit per equity partner, and so I don't think we’re done with partners losing their equity if their books have shrunk or they’re billing fewer hours.”

Two-Tier Models and Role Evolution

As de-equitizations grow, firms are increasingly adopting two-tier partnership models. These models, which distinguish between equity and nonequity partners, allow firms to maintain flexibility while avoiding public demotions.

Nicol predicts that the evolving models will impact other roles, particularly counsel positions. “I suspect the ‘counsel’ role will become less common and reserved for de-equitized partners or those without partnership aspirations,” he said.

For firms without a nonequity tier, demotions often mean a shift to counsel roles, which typically involve lower compensation structures, including salaries with discretionary bonuses.

Stricter Standards Amid Economic Pressures

Economic conditions are also driving de-equitizations. As firms brace for economic slowdowns, they often enforce existing performance standards more rigorously or raise the bar for equity retention. Conversely, strong financial years can result in looser promotion standards to maintain momentum.

• Blane Prescott of MesaFive noted that firms use de-equitizations to adapt to changing conditions. “It is common that, as firms recognize the economy is flattening or declining, that they suddenly enforce existing standards to a higher degree, or adopt tougher standards” for partners, he said, adding that in banner years, firms are less cautious about promotions,” he said.

• Jason Winmill of Argopoint added that expectations for partner performance are rising. “The standards have increased, the bar is high, and it’s only going to increase more in 2025,” he said. “Expectations are going to be higher and law firms are going to struggle to manage the performance of their partners.”

De-equitization is reshaping the partnership landscape in Big Law, affecting compensation structures, career trajectories, and firm cultures. Legal consultants expect the trend to continue indefinitely. Regardless of the economy next year, the de-equitizing trend is expected to continue “forever,” said Kent Zimmermann, a principal at legal consulting outfit Zeughauser Group.