The Lawyer (UK) is one of those publications you ignore to your impoverishment:  Somewhat like the role the Financial Times has vis-a-vis The Wall Street Journal, or The Economist vis-a-vis Business Week, The Lawyer provides a refreshing, candid, often cheeky, Brit view of BigLaw. 

A few weeks ago I noted their release of The UK 100, roughly coincident with The American Lawyer's release of the AmLaw 100, but today I want you to attend to an accompanying story prompted by this problem:

"Every year, when we put together The Lawyer UK 100 Annual Report, we get the same refrain: how can you compare [PPP, or profits per partner, among] firms that have completely different equity structures? Partners from firms with all, or mostly all, equity partners complain that they are not being judged fairly. These firms are constantly frustrated at what they see as manipulation of the figures."

Game the numbers?!  (Did I say that?)  Heaven forfend.  But of course the annual PPP bakeoff has become one of the more celebrated steeplechases of the year, and high stakes bring, understandably, strenuous efforts to perform.

Welcome, then, to salutary antidote:  Average Earnings Per Partner (EPP), or, roughly, total firm income divided by all partners, equity and non-equity alike.  Actually, it's a bit more complex or subtle than that.  Since what non-equity partners take home is, by definition, not a strict function of a firm's profits, The Lawyer takes (a) the total net profits distributed to equity partners, and adds to that (b) the figure arrived at by multiplying the total number of non-equity partners by those "partners'" average annual take-home (which the firms were evidently willing to provide); and finally (c) divide by the global number of all partners, equity and non-equity alike.

Just what do non-equity partners earn?  Typically, a salary plus a small percentage of the firm's profits, and often a bonus on top of that—which may reflect, for example, a cost-of-living allowance that in London is higher than it would be in, say, the Midlands.

The resulting table of selected results is, to my mind, utterly fascinating, and worthy of many minutes of scrutiny.  Not only do they calculate the new EPP figures for many firms, but they also calculate a "new" profit margin which adds back to total reported income the earnings of all non-equity partners.  Not surprisingly, this boosts the margin almost across the board, often to Google-like territory.  Just for example, DLA Piper's margin jumps from 22% to 41.4%, and Clifford Chance's from 27% to nearly 34%.

Is EPP, then, ever going to supplant PPP as the Holy Grail?  Of course not.  Nor should it—after all, the equity partners put up the capital, take the risk, and at the end of the day hold the keys to the kingdom.  But for insight into how firms leverage themselves and distribute the spoils, it can't be beat.