Paying the piper
The notion of partners earning less than their associates has always been the stuff of legend. In the terrible slump of the 1990s there was a number of firms where, it was whispered, the senior associates took home more than their bosses.
But Blake Lapthorn, one of the stalwarts of The Lawyer’s top 100, is the first firm in this recession to admit that this is indeed the case.
To be fair, there’s only a handful of associates at the firm who earn more than the partner average. The bigger underlying story is the fact that most of the fixed-share partners (whose remuneration is understood to range from some £80,000 to £150,000) are on more than their senior colleagues in the full equity, whose average profit this year will be £65,000 once the cost of redundancies and property has been factored in.
For Blake Lapthorn, as for a number of other firms this year, it’s been a perfect storm. A series of mergers and big property investments that were decided upon at the height of the boom need to be paid for, as well as a subsequent redundancy programme. Part of that cost has been funded by a series of cash
Perhaps this recession will finally expose the cracks in the tight eq
uity model that has been characteristic of the boom. Junior partners are great in a bull market because they’re cheap to run and their presence inflates the average profit per equity partner (PEP). That’s the theory. However, in a downturn they’re an enormous cost and can often be more vulnerable than the senior associates, who are a damn sight cheaper. It may not sound a comfortable place for fixed-share partners to be, but as we can see in Blake Lapthorn’s extreme case, most of them can end up earning more than the full equity partners. Pity the more recent recruits to the equity who have barely had time to enjoy the fruits of their promotion to the upper ranks.
I’m not convinced that the majority of firms in The Lawyer UK200 will be moving back to an all-equity model. At least Blake Lapthorn’s employees are seeing their senior partners take the pain of the recession. After all, that’s what an equity partnership is supposed to mean, isn’t it?
Readers' comments (5)
Peter Rhodes | 29-Jul-2009 2:48 pm
This is a somewhat embarrassing state of affairs for many firms that have chosen to follow this model. Hindsight has certainly shown this decision to prove an absolute nightmare for the equity partners in these firms, who must feel truly awful with their current pay packages. That said, I agree with the closing sentiments of this article: in a sluggish economy it is quite right that partners and staff alike should take the rough with the smooth. The problem here is that equity partners end up taking home less than some staff, which can only be described as a financial clanger on their part! Personally I would be very cross if I were to be rewarded less than my juniors, but perhaps this is a sign that in an economy that is a total mess, one cannot simply assume that with higher stature comes higher compensation. The horror of the situation will likely be felt for some time yet; I'm just glad I'm not a partner in one of these firms as I can imagine the reverberation from an empty wallet can be heard from quite a distance. What a disgraceful, putrid state of affairs!
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Anonymous | 29-Jul-2009 4:01 pm
With all due respect Peter, you are wrong.
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David Williams | 29-Jul-2009 4:20 pm
The article in yesterday's lawyer referred to the substantial capital calls made by Blake Lapthorn over the past 12-18 months: you must wonder how deep the partners' pockets are and further calls cannot be met whether they will be asked to "step out of the pantry".
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Peter Rhodes | 29-Jul-2009 4:20 pm
Pipe down
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Anonymous | 30-Jul-2009 10:46 am
In the case of Blake Lapthorn the issue is likely to be a short term blip. If one takes a period of say 5 years there is more than adequate evidence that profits have been good and equity partners have done well. We are in a recession and these results prove the point that the risk of running any business is with the owners. Cash call or no cash call the profits in previous years have served the firm well and I do not believe we will be sitting here in a years time poring over similar results. If we are then there are more deep rooted and systemic problems than we are aware of.
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