How does PEP work?

Out of sheer curiosity, how does PEP work?

I know that it mean profit-per-equity-partner, but I imagine there is a lot more to it.

If a firm's financial stats say 'Average PEP of £450,000', does each partner get £450k on top of a salary, or is PEP just the pay they take home? (just! :rolleyes:

ha)

Also how would it work for a national firm with regional offices. E.g. if DLA Piper/Eversheds had an 'Average PEP of £500k' I am right in thinking that a London partner would get more than a Manchester one?

Thanks in advance for any clarification!

Reply 1

LawLad13

4

Original post by AJ321

Out of sheer curiosity, how does PEP work?

I know that it mean profit-per-equity-partner, but I imagine there is a lot more to it.

If a firm's financial stats say 'Average PEP of £450,000', does each partner get £450k on top of a salary, or is PEP just the pay they take home? (just! :rolleyes:

ha)

Also how would it work for a national firm with regional offices. E.g. if DLA Piper/Eversheds had an 'Average PEP of £500k' I am right in thinking that a London partner would get more than a Manchester one?

Thanks in advance for any clarification!

Equity partners do not receive a salary - instead of a salary, they receive a share of the profits for the year.

There is a common misconception that once someone has been 'made up', they get a large share of the profit-pie. In reality, much like leading up to becoming a partner, there is another lockstep to climb with a larger share of the profit as you ascend it.

(edited 10 years ago)

Reply 2

nulli tertius

21

Original post by AJ321

Out of sheer curiosity, how does PEP work?

I know that it mean profit-per-equity-partner, but I imagine there is a lot more to it.

If a firm's financial stats say 'Average PEP of £450,000', does each partner get £450k on top of a salary, or is PEP just the pay they take home? (just! :rolleyes:

ha)

Also how would it work for a national firm with regional offices. E.g. if DLA Piper/Eversheds had an 'Average PEP of £500k' I am right in thinking that a London partner would get more than a Manchester one?

Thanks in advance for any clarification!

PEP is just a benchmark.

It is the firm's profits divided by the number of equity partners. It would be the pre-tax income for only a very small minority of partners. Most partners ware climbing a lockstep which means they are having to invest money in the firm which is either borrowed or taken from drawings and if the former, they have the debt to service. Junior partners will earn much less, those at the top of the notepaper much more.

I think you can safely rest assured that this Sheffield partner of Dibbs is earning significantly more than most.

http://en.wikipedia.org/wiki/Nigel_Knowles

Reply 3

Key123

8

Original post by nulli tertius

PEP is just a benchmark.

It is the firm's profits divided by the number of equity partners. It would be the pre-tax income for only a very small minority of partners. Most partners ware climbing a lockstep which means they are having to invest money in the firm which is either borrowed or taken from drawings and if the former, they have the debt to service. Junior partners will earn much less, those at the top of the notepaper much more.

I think you can safely rest assured that this Sheffield partner of Dibbs is earning significantly more than most.

http://en.wikipedia.org/wiki/Nigel_Knowles