Watson Farley & Williams has overhauled its remuneration to fixed-share partners in the wake of HM Revenue and Customs’ (HMRC) national insurance (NI) crackdown.
Each of the firm’s London-based non-equity partners has agreed to contribute just over 20 per cent of their remuneration into a separate pooled fund. This will be redistributed to FSPs in the form of a bonus if the firm achieves a target budget at financial year-end. Partners will not be awarded the bonus if the firm fails to hit the budget target.
The policy means WFW will avoid having to pay NI contributions for 20 City partners deemed to be on ‘disguised’ salaries according to HMRC. The details were finalised by its deadline of 6 April 2014 and the firm started working towards its new budget target on 1 May.
The plan was pieced together by WFW’s new co-managing partners Chris Lowe and Lothar Wegener. The pair were appointed in December following former managing partner Michael Greville’s sudden resignation from the leadership post (13 December 2013).
Under a firmwide consultation salaried partners had the choice of either remaining a fixed-share partner or participating in the variable share system. Ultimately the new scheme was given 100 per cent approval by the partnership, which also backed the target set for the 2014/15 financial year.
Lowe said: “The national insurance issue gave us two options – capitalisation or a percentage return based on overall firm performance. We began looking at a variable share structure, which is effective, efficient and a good buy-in to the business of the firm.”
Lowe added: “The budget is built from the bottom-up. It must be proper and realistic.”
He said that the firm initially sets a budget target for each individual office, before combining these into one umbrella figure for the global firm to work towards.
The variable share approach differs to the capitalisation option chosen by many firms in response to the HMRC changes.
Last month, Hogan Lovells called on about 65 non-equity partners to inject between £60,000 and £100,000 to the firm (3 April 2014). Addleshaw Goddard asked 60 fixed share partners to make a cash injection of just over 25 per cent of their salary (24 March 2014), while Weightmans’ also voted for a £3.8m cash call to meet the demands (24 March 2014).