Twenty to 30 years ago, U.K. partner pay was a relatively straightforward affair.
Most law firms, if not all, were lockstep, meaning pay was based on seniority. We've all heard the pros and cons: ‘collegiality’ and ‘collaboration’ versus 'complacency' and 'conservatism'.
Because it was so uncomplicated, it rarely invited questions from in-house counsel. All they really wanted from their external counsel was high quality advice at a competitive rate.
But as U.S.-led law firms entered the market, with a thrusting capitalist mindset, the lockstep ladder started to break.
Even the oldest institutions, such as 277-year-old Freshfields, modified their locksteps and are now even considering whether to introduce a tier of non-equity partners.
What we have these days is a smorgasbord of different pay models. Although it is tempting to talk solely about equity and salaried partners, there are variations, such as:
- full equity—generally the highest paid partners, whose pay is entirely based on a variable share of the profits
- equity partners whose pay is made up of majority variable and minority fixed components
- equity partners whose pay is made up of minority variable and majority fixed components—what you might call ‘fixed share partners’
- 50/50 partners, where, you guessed it, half pay is variable, the other half fixed
- variable non-equity—where the bulk of pay comes by way of a bonus, so pay can be high but is nonetheless outside of the equity
- non-share partners, whose pay is entirely fixed—also known as 'salaried partners'
And this list is non-exhaustive. The reality is even more complex.
That’s why it’s unusual to find any two firms with exactly the same pay model. In addition to tiers of partner, there are related considerations about the way equity points are allocated. Whether points should gradually increase over time, as with a traditional lockstep, or whether the billings and contribution of each partner should be the only factor. And should this be assessed every year or less frequently?
Pay variability is not unique to law. Investment bankers are often remunerated through a combination of fixed salary, bonus and sometimes performance-based stock. Variability is key in performance-based reward systems.
But let's remember that very little of today's complexity in Big Law was by design. Playing catch-up, U.K.-founded firms broke, or ‘modified’, their locksteps by adding ‘gates’ along the scale and other merit-based elements, such as bonuses, regional variability and 'super pointer' tiers, while more U.S. firms have increasingly relied on non-equity tiers to avoid losing talent by giving younger stars the partner badge, and to ring-fence profit and avoid equity dilution.
Tiering equity is messy. It’s what you get when you apply ‘new world’ devices to ‘old world’ models...
