Kirkpatrick axes lockstep as guarantee period ends

The London end of Kirkpatrick & Lockhart Nicholson Graham is ditching its modified lockstep system at the beginning of next year when the two-year integration period for the UK firm comes to an end.

At the time of the 1 January 2005 merger of Kirkpatrick & Lockhart and Nicholson Graham & Jones, both parties agreed to maintain the UK firm’s legacy lockstep system for a two-year transitional period. During that time UK equity partners were paid at guaranteed levels according to their respective levels on the lockstep.

This deal expires in January 2007, the start of the firm’s next financial year. From then UK partners will be remunerated on the firmwide merit basis along with the rest of Kirkpatrick’s partners.

“The UK firm is structured as a UK limited-liability partnership [LLP] for regulatory reasons, but the equity partners are also members of a Delaware LLP,” said UK managing partner Tony Griffiths. “In other words, the firm operates a single profit pool and profits are distributed via the latter LLP. But from next year the guarantee structure will fall away completely and all partners will be remunerated on exactly the same system.”

Although Kirkpatrick’s UK modified lockstep includes a 10 per cent profit pool for discretionary bonuses, its rigid structure confines the equity spread. Last year this ran from £210,000 to £380,000.

One significant consequence of next year’s change will be that the UK spread is likely to widen significantly, with top-earning UK partners in line for a considerable boost to their remuneration. Kirkpatrick’s global top of equity currently stands at around £1.45m.

“The top-performing partners in London will get a lot more money from next year,” confirmed Griffiths.

At least two of Kirkpatrick’s top 10 billing clients have significant operations in London. The partners with responsibility for Henderson Global Investors, Laing O’ Rourke and Dunbar Bank should see healthy increases in remuneration in 2007. But underperforming partners will no longer be guaranteed remuneration at last year’s ‘floor’ of £210,000.

The London corporate group showed the most growth during the year, with headcount rising by 30 per cent. The current year has continued to be strong, particularly in the AIM market.

Kirkpatrick increased both revenue and profit in its first full financial year since its merger. At just £300,000, its average profit per equity partner (PEP) was among the lowest of all the US firms’ last year. Yet it did see one of the highest PEP rises of the year. Its figure was a 36 per cent increase on 2004’s £220,000.

London revenue rose by 10 per cent to £29.8m from £27.1m, while firmwide turnover rose by 26 per cent, from $372.5m (£214.3m) to $468.9m (£270m).