Lawyers still need a PEP talk – Dentons calls for an end to profits reporting, but it's still a valid comparator
It may not have quite the same pull as the World Cup, but if anything in the legal world is likely to divert attention away from the goings on in Brazil, money is always going to be a likely candidate.
June 12, 2014 at 05:43 AM
3 minute read
It may not have quite the same pull as the World Cup, but if anything in the legal world is likely to divert attention away from the goings on in Brazil, money is always going to be a likely candidate.
To prove the point, Dentons' confirmation and defence of its decision to stop reporting average profit per equity partner (PEP) numbers had readers clicking in their droves earlier this week.
Of course, the argument that PEP is no longer a relevant criteria on which to judge and indeed rank law firms is far from new – Norton Rose Fulbright's Peter Martyr has been campaigning for its demise for years – but in the case of some firms it is becoming increasingly valid.
For a verein firm – such as those named above – with no profit sharing between different regions of the business, operating across vastly different cost bases, the idea of a single, global PEP number is pretty meaningless. Even PEP numbers released by UK firms with single profit pools are open to significant manipulation; for starters, firms need only trim a few equity partners to create some sizeable increases in PEP.
And it is easy to see that reports of double-digit percentage growth in adviser remuneration rates – which already sit far higher than the salaries of those paying the bills – are likely to rile even the most generous clients.
But it would be naive to argue that just because a global PEP number is not meaningful and the idea of advisers receiving high salaries – and, gasp, that partners may be motivated by these – is distasteful, then local measures of comparison are no longer relevant or won't happen.
It is true that more money should not, by default, equate to better-quality work or lawyers. Indeed, for firms with flexible enough remuneration systems it would still be possible for star partners to receive individual packages far higher than an average PEP number may suggest.
However, for those firms competing for the same work and the same talent it would take a fairly special junior candidate not to at least consider the different remuneration packages likely to be on offer in the future.
So while PEP may not be the right metric on which to judge firms, in those markets, like the UK, where reporting regulations mean very little stays sacred once the accounts are filed, attention would simply shift to measures such as revenue per lawyer or profits per partner. And the subsequent discussion could prove just as uncomfortable for those currently calling for the end of PEP.
- For more, see Dentons to stop reporting 'meaningless' PEP figure
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