Herbert Smith pushes for profits to fund pay hikes

Herbert Smith's property department is under pressure to boost profits to help pay for a 30 per cent increase in assistants' salaries, to be announced next week.

Alongside the salary increases, brought in to keep pace with those already announced by other top firms, Herbert Smith is considering replacing its retrospective firm-wide bonus system with a merit-based structure.

Its property department generates substantially fewer profits per partner than corporate services and is being forced to assess its role.

Gerald Bland, a senior partner at Herbert Smith, says: “There are several choices for less profitable departments across the City.

“They can stay as they are or become smaller support entities for the corporate people.”

Another alternative, Bland says, is for threatened departments to unload low-value work. But he rules out any overnight disruption, saying changes would be phased in.

The questions being asked at Herbert Smith reflect a wider debate in the Square Mile, with lower profit departments under increasing pressure to justify their existence.

Bob Kidby, head of property at Lovells, says profit is increasingly an issue.

“What you've got to do is align yourself as close to your corporate department as possible – getting involved in big deals – that is where the future is,” says Kidby.

The benefits of restructuring can be seen at Clifford Chance, which revamped its property team following the last recession.

The department is now the second most profitable in the firm. “People are surprised we do not have a problem in that area,” says senior property partner Tony Briam.

David Taylor, head of property at Berwin Leighton, which derives around 45 per cent of its income from the sector, says: “If large firms do not consider property profitable enough it must represent an opportunity to the likes of us.”