Top 20 law firm cuts payouts to exiting partners amid crackdown on underperformance

Simmons & Simmons has cut the cost of managing equity partners out of the firm by slashing the compensation to be paid out to most exiting partners, with the move coming as the firm's management takes steps to crack down on underperformance.

The firm has changed its partnership agreement so that those managed out will effectively receive one year's pay. The payout will be capped at £400,000, but with most partners likely to be managed out expected to be at the lower end of the equity ladder, it is unlikely the full amount 
will be paid out.

The change, which was approved by partners earlier this autumn, removes a glitch in place over the last few years, which meant that any equity partner asked to leave was entitled to £400,000, regardless of their position within the equity.

Partners said the fixed £400,000 payout had been decided just ahead of the 2008-09 financial crisis, however, Simmons' profits per equity partner has subsequently dropped by almost 30%, from £647,000 in 2007-08 to £460,000 in 2010-11.

Partners have also approved a change that means those resigning could receive a smaller share of the merit-based part of their remuneration. The firm's modified lockstep sees 20% of total profits set aside to be awarded on merit, with partners receiving an additional three, six or 10-point bonus at the decision of a remuneration committee. The committee will now be able to reduce the amount awarded if partners resign.

The overhaul to the partnership agreement comes as Simmons' management team has sent a strong message to partners that underperformance will no longer be tolerated. The subject formed a key plank of speeches made by managing partner Jeremy Hoyland (pictured) and senior partner Colin Passmore at Simmons' annual partner conference last month 
(18-19 November).

Separately, but as part of wide-ranging plans to boost productivity, Hoyland recently warned partners that client relationship work will be monitored more closely, with partners expected to work with at least some of the firm's 100 key clients.

One partner said: "The general message is that senior management is less tolerant about the discrepancies in partner contribution. Simmons is a decent and collegiate firm, but there comes a point where you have to ask yourself what is more collegiate – to tolerate underperformance at the expense of the general partnership or to ensure everyone pulls their weight."