This article outlines and explains the four stages in the lateral partner offer process. The offer process varies by firm, but it usually happens in multiple stages, as outlined below.
Stage 1: Discussion of the rough terms
Firms usually start off by discussing the equivalent of a term sheet, and this more often happens verbally.
Why the preference for verbal?
First, the offer terms may be confidential (especially if it’s a partnership with a closed compensation model), along with the fact that offer terms are generally sensitive by their very nature. While you are not under an obligation to keep the offer terms confidential (unless the firm specifically requests this, and you agree) there’s a general understanding that it will be kept confidential. While many people discuss offers with their immediate trusted network of friends and family, firms tend to hope that the terms will be treated with discretion for a host of reasons.
Second, by speaking with you as opposed to sending the terms in writing, the person extending the offer terms can gauge and analyze your reaction in real-time. How you respond to the verbal offer terms can impact negotiations.
The categories discussed are different if the term is for equity or non-equity partnership (or for a corporation, Member or Shareholder), and differences will be noted below.
- Partnership Category (equity or non-equity)
- Compensation: If equity, how many points/shares and the equivalent annual value based on the firm’s current estimates. If non-equity/non-shareholder, your guaranteed compensation. (If you are hybrid, meaning your compensation is split between equity and guarantee, the breakdown.) If equity, the monthly draw and general schedule for distribution of profits.
- Capital Contribution: If equity (or hybrid), the amount of the capital contribution and terms of payment.
- Guarantee on compensation, if any.
- Signing bonus and/or guaranteed year-end bonus, if any.
- Performance bonuses, if any.
- Leadership title, if any.
- Any other key provisions.
Note: while many firms prefer to share this information verbally, there are a number who will provide general term sheets via email or formal document, or sometimes even a draft offer letter.
Stage 2: Negotiations, if Warranted
I discuss negotiation at length here. If you are working with a recruiter, your recruiter will handle negotiations (see here, specifically Stage 12).
Stage 2(a): Additional Due Diligence (sometimes)
With an offer extended, some partners will feel more empowered to kick the tires a bit more. It’s advisable to review the partnership agreement for key provisions that might not seem relevant during the courting process but can be critical if things do not work out. You might be required to sign a confidentiality provision or review the partnership agreement itself at the firm’s office. Skip this step at your own risk.
Some partners also use this stage to perform additional due diligence on the firm’s financials and ask the more pointed questions they otherwise did not feel comfortable fully exploring before, but in my opinion, it’s not necessary to wait until this stage. Waiting is very much an associate mentality (“I can’t ask hard questions until I have an offer”). Firms respect partners who ask the thoughtful and hard questions during the interview process.
Stage 3: Agreement on Terms
Note – agreement on terms is different than “acceptance” of terms. This is an important distinction, especially if you are moving from one firm to another. Certain ethical and fiduciary duties become triggered once you accept an offer at another firm. This is discussed more at length here.
Stage 4: Formal Offer Letter and Other Documents, and Final Negotiations/Edits
Once there’s an agreement on the general terms, the firm will send a formal offer letter and any other relevant documents such as benefits packages, etc. Some firms may proactively provide an opportunity to review the partnership agreement at this point, or you might need to ask.
Lastly, sometimes what’s discussed is not fully captured in the offer letter so there can be a round or two of negotiation/edits to fine tune the wording.
Once the offer terms look good and the final negotiation is complete, we turn to the process of acceptance and giving notice, which has many moving pieces and deserves its own section.