'Even some CC partners don't understand it' - Clifford Chance's latest lockstep overhaul under scrutiny
Current and former CC partners offer their take on the firm's latest lockstep review
May 19, 2017 at 06:07 AM
5 minute read
"Even some Clifford Chance (CC) partners don't understand it" is the blunt assessment of the magic circle firm's latest lockstep shakeup from one current partner.
Last week, CC partners voted through another round of lockstep reform expected to increase pay for the firm's top billers, as it pushes on with recent efforts to boost profitability and attract star performers.
The latest overhaul, which will see all partners' positions reassessed, is expected to stretch the lockstep so those at the top can take home an increased share, while also changing the way the firm calculates and allocates profit units. CC's core lockstep currently stops at 100 points, with a handful of partners on 115 and 130 'super-point' levels introduced in 2015.
One partner said the new method of calculating profit units would change the value per unit and would make it easier for high performers to receive a larger share of the profits.
He said: "The proposal this time is quite complex. You've got a restructuring of the lockstep; it is more about how unit values are calculated rather than saying, 'we are giving people more money'. The way units are calculated is different and they are spread across different levels of seniority. The driver is to create more flexibility at the top of the ladder."
The latest changes come after the firm's 2015 lockstep review handed management the power to bring plateau partners down to 70 points.
One former CC partner commented: "They have moved people down to 70 and they have changed the ladder. If a number of partners are getting paid 30% less, that changes the unit allocation right there."
One way the firm could offer its top earners more generous packages is by reducing the number of units available for junior partners, according to Aster Crawshaw, professional practices partner at Addleshaw Goddard.
"The trick is to be able to allocate more points to your most successful partners without significantly increasing the number of points in issue, which would reduce the value of each point. There are a number of ways a firm can do this, primarily by restricting the number of points issued to more junior partners."
He added: "If partners usually move up the lockstep in increments of 10 points, for example, you could reduce the increment for some partners to five points. You could also hold partners on the lockstep, or move them down. Or you can reduce the number of units at the bottom. This is something law firms have been looking at recently."
Another option would be to recalculate the units according to office profit, suggested one City partnership expert. "It is possible to value units for particular offices by reference to profits of that office as opposed to profit as a whole. What would need to be reassessed is how you calculate profit attributable to each office."
CC has carried out a series of initiatives to boost profitability since Matthew Layton became managing partner, and had been consulting on a range of different options before deciding on the latest plans.
According to one former partner, one idea being touted late last year was reducing the number of points in circulation by 20% in order to increase the value per point, however this was not pursued.
In February, Legal Week reported that CC had broken its core lockstep and begun using its 'super-point' tier in London and New York.
Former partners said units were worth around £13,000 in 2015. Based on this figure, a 20% uplift in point value would take a partner on 130 points to more than £2m and would also lessen the blow for any partners moved down to 70 points.
One ex-partner said: "Everyone's persuaded that there's a 20% uplift so partners could drop down the lockstep, but their units are worth more. That's how they are selling it internally."
The firm is aiming to ward off more high profile partner exits, following recent departures such as that of global banking co-head Patrick Sarch, who left to join White & Case in January.
Another ex-partner commented: "CC was always a firm where people didn't want to be too ruthless, but many partners said: 'We need to do something – we are losing really good people.' It is a different firm from what it was two years ago. Layton is very much managing from the top."
However, whether the efforts pay off will depend on how the dust settles. As another former partner commented: "The key concerns will be whether decisions have been made fairly, and the effect on collegiality. Partners will start to ask: 'where do I actually stand?' What they did before meant the core lockstep was unchanged; they just bolted on this bit at the top. The question now is – is this really a lockstep anymore?"
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