Linklaters Moving Away From Lockstep Pay Model

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Linklaters Moving Away From Lockstep Pay Model!

Linklaters is the latest corporate law firm to soften its traditional partner compensation model, attracting and retaining top talents by adapting to fierce competition, and at the same time providing higher salaries for outstanding performers.

In an email to employees published by the Financial Times on Wednesday, senior partner Edamar Comiski and managing partner Paul Lewis stated that Magic Circle is changing its global compensation structure to increase its availability to "outstanding partners. “The company’s 500 partners also voted to allow the company to “accelerate the growth of partners who have made outstanding contributions.” The email stated that this means that if young partners perform better than their peers, they can see their progress more quickly. Income.” Linklaters, whose clients include Unilever, Tobacco and NatWest, are one of the elite law firms in the London magic circle. The firm traditionally adopted a staggered structure in which partners with the same qualifications got the same reward no matter how they performed.    

The decision was announced just days after New York-based firm Cravath, Swaine & Moore, one of the last bastions of a clean lockstep system, revised its pay structure to reward partners with merit. UK companies are under increasing pressure to retain star partners as US competitors increase their presence in London and offer large sign-up bonuses and an eat-what-kill reward model. Two other magic circle companies, Allen & Overy and Freshfields Bruckhaus Deringer, moved to more flexible payment models last year, while Clifford Chance reportedly took similar action in July. As a result, Slaughter and May was the only one of five companies to resist abandoning traditional partner pay structures.

What is a lockstep pay model?

In the UK, Europe and Australia, 50% to 70% of partner salaries are still largely based on the local pitch system, but the use of pure unadjusted lockstep in these jurisdictions continues to decline steadily. Instead, hybrid forms of Lockstep are slowly evolving, in which some performance adjustments are made based on quality criteria. Few companies in North America have ever used lockstep, and most of those who have used this system have now ditched it. Partners in North America seem to be more inclined to give their compensation to others, while partners in law firms in the UK, Europe and Australia prefer a more predictable and predefined set of criteria.

In the Lockstep system or on the basis of experience, one Partner, upon joining the Partnership, exchanges their individual profitability and intellectual capital for participation in the “mutual fund” of other Partners. In this way, they will be able to share the future joint income of his members, some of whom will be their contemporaries and some of whom will offer different levels of knowledge and experience acquired over the years. The profit share of each member depends entirely on their seniority. In a particular year, the relationship between the Partners at different levels is predetermined.

The system takes into account that partners need time to navigate after joining the Partnership. The system emphasizes the reciprocity of partnership and the sense of mutual assistance and support that should exist between partners. Lockstep is essentially a partnership-sharing model that emphasizes the benefits and benefits of diversifying opportunities and sharing risk among a group of partners, rather than an individual “eat what you kill” mentality.

The system distinguishes the personal qualities and profitability of each partner (his "personal human capital") from the specific intellectual capital of the company owned by the company. The system encourages a more collegial environment in which partners are encouraged to pursue the interests of the company rather than their own.

For a firm with a large amount of firm-specific intellectual capital, a profit sharing or distribution scheme has some important potential advantages. The key benefit is exceptional diversification and a fostering culture in which customers are treated as repeat customers and effective teamwork is encouraged. In the case of many companies as a whole, the customer is seen as central to their ideal, and for such a company the culture of “the company is in front of you” is fully consistent with the profit chain model.

While low productivity is not an issue, in the world of professional services, there is a fine line between a good partner and a great partner. It can sometimes be difficult to find the right spot on the capital ladder for outside employees. In a company with lockstep, the problem of picky and ineffective employees is viewed more as a management and development issue than a reward issue. Companies with blocking or staggered profit sharing tend to be less tolerant of mediocre or poor performance than companies that use individual performance-based rewards extensively.

Linklaters, which employs more than 5,000 employees in 21 countries, said the change would help increase revenue in its most profitable businesses and grow its US business. The company, where partners earned an average of £1.77 million in the last fiscal year, will also have "more flexibility to select our best talent for partnerships first," they added.

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