I want to start this conversation because something isn’t adding up in the way our company talks about risk and reward.
We’ve all heard the narrative:
“Partners take on the financial risk, while employees share in the success.”
But when you look at how our compensation and margins actually work, the picture appears to be very different.
How the Current Model Really Works
Here’s what the numbers show:
• 11-12% profit margin is built into the financial model for LP and GP payments every year. Approximately 72% of that margin goes to the GPs. See page 30 and 50 of the publicly available 10-K.
• After covering that 12%, whatever’s left goes to the employee variable compensation pool (bonuses,and profit sharing). We have all heard during bonus time that employee bonus can not be make the profit margin fall below a certain percentage depending on the bonus level.
In formula term
Revenue - Expenses - Bonus Pool = 0.12 Profit Margin
So the bonus pool is 0.88(Revenue - Expenses)
That means when expenses increase, bonuses automatically go down, because the partners’ 12% margin stays fixed.
Let’s put that into perspective:
Scenario Revenue Expenses Partners (12%) Employee Bonus
Normal year $10M $7M $1.2M $1.8M
Expenses increase $10M $7.5M $1.2M $1.3M
Even though revenue doesn’t change, employee bonuses fall by $500K while partners’ returns stay identical.
So the idea that partners are “bearing the risk” of expense increases doesn’t appear to be accurate mathematically. Employees appear to be bearing the brunt of increased expenses with lower bonuses. Unless my math is wrong, which maybe it is, but there have been lots of discussions about decreased bonuses with record profits over the years.
Now About the New Limited Partnership Offer
At first glance, it sounds like a great opportunity.
But here’s what’s changed under the surface:
Before: Limited partnership returns were guaranteed.
Now: There’s no guaranteed return, just “potential for higher earnings.”
That means the company is shifting more financial risk from the partners to employees. If GP payouts are guaranteed first, then the LPs again are taking on the risk of increased spending by the GPs.
What We Should Be Asking
Before signing or investing, ask these questions in writing:
1. Priority of payments:
Who gets paid first — partners or limited partners — and in what order?
2. 12% margin protection:
Are we maintaining 12% margin protection and do GPs still get 72% of that margin? What percent will go to LPS?
3. Profit calculation transparency:
How exactly is “profit” defined for distribution purposes? Are partner salaries, perks, or expenses deducted first?
4. Historical context:
What would limited partner returns have been under this new structure for the past five years?
5. Liquidity and exit:
If an employee leaves or wants to sell their stake, how is the value determined? Is there a buyback obligation, and at what price?
6. Governance:
Do limited partners have any say in how profits are allocated or reported?
The offer sounds good but without a guaranteed return, you’re taking on real investment risk. At the same time, if the partner allocation remains fixed, then the risk is being shifted more to LPs.
This doesn’t mean we shouldn’t participate, there are still many unknowns about the new offering. It does mean you should go in with eyes wide open. Transparency and informed consent are what fairness look like. If the company truly wants shared success, the financial model should reflect shared risk not just shared language. I hope I am wrong and this is a good thing because given what we have all been through this year we need a silver lining. The culture has shifted drastically and a lot of trust has been lost. Let’s make sure we are asking the right questions to ensure GPs aren’t raking in cash and spending like drunken sailor, while we get the crumbs.