More firms paying partner bonuses while embracing alternative compensation systems

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By Legal Futures

11 June 2012


Pay: two-thirds of UK firms continue to use some form of lockstep system

There has been a surge in large law firms paying partners bonuses over recent years along with distinct shifts in the way they compensate partners more generally, new research has revealed.

However, the study of partners’ pay by legal management consultancy Edge International showed that lockstep continues to be the main compensation system among large UK firms, although only 13% operate ‘pure’ lockstep, as opposed to combining it with other elements.

Some 263 large firms in the UK, US, Australia, Canada and Europe took part in the research, which Edge previously conducted in 2006 and 2008. It was written by leading UK consultant Nick Jarrett-Kerr and his US colleague Ed Weseman.

It found that 74% of UK firms now pay partners bonuses, compared to 44% six years ago, with the average amount of bonus also up, to 5.8% of total distributable income.

Two-thirds of UK firms continue to use some form of lockstep system – which by contrast is barely seen in the US – but only 13% base it solely on seniority. In Europe, however, 41% of firms operate a pure lockstep.

By contrast, just 8% of UK firms base partner compensation purely on a subjective assessment of performance by a person or committee.

The fastest-growing compensation system across all the jurisdictions surveyed was what Edge called the “combination” approach, where pay is based on a partner’s statistical performance “but the application of statistics may be subjectively modified”.

Some 20% of UK firms now operate such a system, up from 7% in 2006. A further 9% use a corporate form of compensation, which pays a fixed base salary plus a bonus based on individual performance, plus a dividend based on the financial success of the firm.

“It is difficult for firms to transform their compensation models completely and [they] will prefer to modify and incrementally change their current model,” the report said. “Hence, it is no surprise to us to have it confirmed that firms have added some performance factors to adjust the automatic progression under lockstep.”

The survey also found a slight fall in the number of top UK firms having non-equity partners – 88%, down from 94% in 2008.

 



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