Biglaw

Faced With High-Profile Partner Defections, Firm Revamps Its Compensation Structure

Former partners spill some tea about the move.

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I guess lockstep compensation just ain’t what it used to be…

The Magic Circle firm of Freshfields Bruckhaus Deringer was a real holdout when it came to lockstep partner compensation, but after a series of high profile partner defections, they’ve rethought their process. Earlier this month the firm voted on a new comp model, which will allow top performers to earn up to six times more than those in the bottom:

[The new model] will see all partners joining the lockstep at 12 points, with a new top of lockstep rising to 60 points.

The core ladder will run from 12 points to 40 points, with everything above this only applying to star performers and those in competitive markets such as New York. Elsewhere, partners will climb to various points on the ladder depending on factors such as geography and practice group.

There will be three gates in the system where the firm will be able to either pause partners’ progress or stop them from climbing higher. In theory, the firm will also be able to move partners down the lockstep from a gateway position, something it was previously unable to do. Only the very top performers will be able to clear the third gate to reach the new 60-point plateau.

Of course U.S. Biglaw firms are usually on a merit system for partner compensation (hence the importance of a portable book of business), and several other Magic Circle firms have also moved away from the lockstep model. But it is big news for Freshfields to make the switch. In 2015, during the election for firm management the team of Ed Braham, Stephan Eilers and Chris Pugh (Pugh stepped down from his role in July) ran on a platform of maintaining the lockstep model. Law.com has a piece with current and former Freshfields partners spilling tea on the recent change:

A former partner says: “The Braham-Pugh ticket was: ‘steady as she goes; we are not going to change anything.’”

But that wasn’t to be. In addition to losing partners, they also posted a poor financial performance, falling behind competitors in both revenue and profitability. So the change seemed necessary:

One magic circle partner says: “You only really change things that you care passionately about when you feel vulnerable; they have had a tough 18 months and lost a couple of stars.”

One former partner says: “All their talk of increasing profitability per point [without changing lockstep] was pie in the sky.”

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And there’s lots of concern and hand wringing about the long term impact of the move — both in terms of firm morale and the lateral partner market:

One magic circle partner says: “The lockstep purists will argue that this could unsettle the home base, and I think there is something in that. Introducing a difference between stars and very good people in London – people who have grown up as complete equals in remuneration and status terms – is remarkably difficult.

“It isn’t the case that it is a small band of brothers at the top in terms of performance – it is shades of grey, and it changes. Some people are very good for two years and then not so good the next year.”

A former partner adds: “It is a big step, and one that will no doubt cause a lot of angst and heartache”. Another predicts: “I am sure there will be some CVs in the market in due course.”

We’ll just have to wait and see if the move is hailed as one that benefitted the partnership…

headshotKathryn Rubino is an editor at Above the Law. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).

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