ALLEN& OVERY’S (A&O) PEP leapt by 20 per cent, from £656,000 to £788,000, during the past financial year. Turnover also increased, by 11 per cent, from £666m to £736m.

Although A&O’s financial performance for 2005- 06 was largely in line with its magic circle rivals’, its comparative positioning has faded

The figures drop A&O one place to seventh in the turnover table and place it 25th on profit in The Global 100, up one place from 2004-05.

A&O’s remuneration system has never been so controversial. Its ladder, which runs for 16 years, has always been one of the longest among global firms.

But the firm’s commitment to lockstep faltered early in 2006. The Lawyer revealed (23 January 2006) it had slashed the number of equity points awarded to its London-based project finance partners. The firm also tinkered further with its profit structure when it moved two star London finance partners (and former laterals) up the lockstep.

This apparent loss of self-confidence was compounded by The Lawyer’s shock revelation (31 July 2006) that A&O had approached Freshfields Bruckhaus Deringer for a merger, underscoring A&O’s seeming insecurity. The informal approach, which followed a year of merger scenario planning, was made in April 2006 and was immediately rebuffed by Freshfields. However, A&O managing partner David Morley told The Lawyer that his firm had looked at a range of different kinds of scenarios, “not just in terms of whether we should merge, but also what would happen if the legal landscape changed”.

“You’ve got to be prepared for a change,” he added. Internationally it was not all bad news. The US increased its profit performance markedly, while in Europe its investment in Germany began to pay off with the firm turning over €59m (£39.52m), up 15 per cent on last year. A&O continues to shine in the Benelux market, but further south its performance is patchier. Paris saw departures, Spain appears unable to grow, while Italy is a shadow of its former self after the initial merger with Brosio & Casati in 2000.

China continues to be a major focus, with growing presences in Beijing and Shanghai (it poached Freshfields’ former practice head in Beijing) and a mature strength in Hong Kong.