As magic circle firms review their remuneration models, is the future of lockstep in question?
What do the discussions at Linklaters, A&O and Clifford Chance mean for the pay system?
June 03, 2015 at 10:28 AM
4 minute read
How far away from pure lockstep can a law firm move while still insisting it is a lockstep firm? That seems to be the question magic circle firms are asking themselves at the moment, as it emerges that all bar Slaughter and May are in the process of tinkering with their partner remuneration systems, or have already done so in the last year or so.
Linklaters used its April partner conference as a sounding board for a forthcoming review of its lockstep model, which according to partners will look at areas including potentially bringing in the flexibility to better reward high-performing junior equity partners.
Details are inevitably sketchy – not least because no formal proposals have been voted on or indeed gone to partners – but the ambition of making it easier to incentivise junior partners outside a rigid lockstep structure sounds very similar to a change quietly ushered in by Allen & Overy (A&O) at the end of last year. This saw the firm introduce a new discretionary bonus points pool, which can be used to reward star partners already at the firm as well as lateral hires coming in.
Clifford Chance (CC) partners, meanwhile, voted to give the firm's management team powers to overhaul its lockstep in April. The potential consequence is understood to be CC making some room in its system by moving some partners at the top of the lockstep down to reward a smaller number of ultra-high performers with the super-point plateaus that the firm had previously not used.
And, while the timing is more vague and the firm has remained tight-lipped on the subject, Freshfields Bruckhaus Deringer's US hiring spree in September last year was widely rumoured to have come about after the firm flexed its pure lockstep to attract stateside talent. Freshfields did the same in Asia in 2012 for a handful of partners in response to some high-profile departures from the firm locally.
The tracks at each firm vary: A&O has the longest lockstep ladder, running from 20 points to 50 over 15 years; Freshfields has a 12-year, 17.5 to 50 point ladder; CC has a three-tier structure with a core lockstep (excluding super points) topping out at 100; and Linklaters' runs from 10 to 25 points over 10 to 12 years.
However, a common theme is emerging that the magic circle may not be so wedded to these systems as they once were, with Slaughters apparently now standing alone in its absolute commitment to the system.
"Lockstep is a lovely thing provided people's performance is roughly the same," says Alan Hodgart at legal consultants Hodgart Associates. "In the real world that's just not the case."
The rise in competition from high-paying US firms in the London market, as well as an increasingly global market with significant differences in profitability across offices, has now forced the magic circle to pay more heed to how they pay partners, according to Hodgart.
"The pressure just hasn't been as great on the magic circle as the lower tiers until recently," he adds. "They realise they need more flexibility. In the past they've managed it by just getting rid of people who are under-performing to keep it clean. But you can't keep doing that, it just undermines morale."
Some partners within the firms though remain convinced of its benefits. "We don't want to think in terms of the individual bringing in work as opposed to the firm as a whole – you lose the collective responsibility of a partnership without lockstep," comments one Linklaters partner.
"As a firm we are firmly in favour of lockstep," agrees another. "It's a big virtue having it. But inevitably there are times when people reassess things and question whether it's the right thing to do or not."
All of which raises the question of who is going to make the biggest break first, and whether the others will follow.
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