Research finds intense pressure to cut under-performing partners

Half of the UK's top 30 law firms are either de-equitising partners or considering it, according to new research from professional services firm Smith & Williamson.

The research found that of the 20 firms within the UK top 30 to complete the survey, nine were already in the process of de-equitising partners, with a further six expecting to consider it during the current financial year.

The results suggest it is a strategy being deployed more often by the larger law firms. Across the top 50, 20 of the 34 firms surveyed were either already making de-equitisations or considering it.

Smith & Williamson head of professional practices Giles Murphy (pictured) said: "Income levels are steady at the same time as costs are rising and that means profit shares are going down – one way to fix this is de-equitisations. I don't see it as a one-off. It's not a relaxed job for life anymore – partners have to compete on an annual basis now."

The survey also looked at profit-sharing arrangements, with all five of the top 10 firms surveyed allocating less than 25% of profits on a discretionary basis, indicating that traditional profit-sharing arrangements such as lockstep are prevalent.

However, mid-tier firms appear most likely to buck this trend, with seven of the 27 top 40 firms interviewed allocating more than 50% on a discretionary basis and two of these expecting this proportion to rise in the next few years.

Other findings in the survey include a fall in capital calls over the last year, with three top 40 respondents making capital calls in the last year and a further three considering it. This is down from a year ago, when 10 firms in the group either made or considered this.

Law firms were also more confident about the future than they were a year ago, with 71% of respondents confident about the year ahead – 7% up on last year.