Let's Discuss: Non-Equity Partners in Accounting Firms

If you have career aspirations to be a partner at an accounting firm, achieving the status of a "non-equity partner" might not be what you had in mind.

The whole point of being a partner, I think, is the opportunity to have some skin in the game. Yes, you also have a say on how a firm is run and help develop its future but my hunch is that the biggest appeal for most people is the ownership. And as the name suggests, non-equity partners do not have the benefit (or risk) of being an owner of the firm. But now, as CPA consultant Marc Rosenberg notes, there are more of them than ever before, writing that "Nearly half of multi-partner firms now have non-equity partners, almost double the number of 10 years ago." 

Why would a firm want to have "non-equity partners" in the first place? Rosenberg offers several reasons:

  • A way to keep the bar high for equity partner.
  • A partner-in-training program.
  • A way to recognize the stature and contributions of  highly valuable manager who meet most but not all partner criteria.
  • A staff retention tactic.
  • For lateral partner hires, to provide both sides with an opportunity to test each other out.
  • A title for merged-in retirement-minded partners and retired partners working part-time.

He also lists "features" of non-equity partners:

  • Attend partner meetings.
  • Compensation determined the same way it was when the person was a manager — management’s discretion.
  • Access to the firm’s financial statements and performance metrics with one exception: compensation of the equity partners.
  • Equity partners should never tell clients and staff that someone is a non-equity vs. an equity partner.
  • A small but growing trend is to award partner buyout payments to non-equity partners, albeit on a much lower scale than for equity partners.

I'm sure partner meetings are interesting, but I'm not sure wasting more time listening to other people talking is what most people look forward to. Likewise, Bullet #2 is pretty disappointing since accounting firms don't have the best record when it comes to transparency about compensation.

That fourth bullet is especially concerning: non-equity partners are held out as owners when, in fact, they are not owners. One of the most important things I'd want to understand is the balance between my responsibilities and my liability exposure, especially in worst-case scenarios. Another downside of being a non-equity partner is pretty well summed up by this tweet from Francine McKenna:

If you could be let go at any time for any reason, that doesn't really feel like being a "partner" does it?  

Call me cynical, but I kinda get the sense that at least part of the non-equity partner tactic is to move the goalposts on anyone who they deem "not quite ready" to be a partner when they don't have a better excuse. I wouldn't go quite so far to say that non-equity partners are second-class citizens, but some people might.

But then again, maybe ownership isn't as important to most non-equity partners. They don't want to deal with the large buy-in, liability risk and responsibilities that come with managing the firm. In other words, being a non-equity partner might be exactly what some people want.

Plenty of ink has been spilled on the subject, but we haven't really discussed it here. So for the non-equity partners out there, share your experience and perspective about your role and how you feel about your long-term prospects. If you're a manager at a firm, does a non-equity partner role interest you? Does it seem like step and toward the goal of being an equity partner? Or do feel it's just another senior manager parking lot in disguise?  

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