Top of the PEPS

  • Print
  • Comments (6)

Readers' comments (6)

  • Where is Herbert Smith? Has it not released its figures yet?

    Unsuitable or offensive? Report this comment

  • Surely a more notable absentee is Slaughter and May?

    Unsuitable or offensive? Report this comment

  • Slaughters always posts its PEP/revenue figures later than most firms, so not that notable an absence.

    Unsuitable or offensive? Report this comment

  • can anyone please give a brief explanation as to what exactly is meant by the profit per equity partner, i am still a student at uni and do not really understand the term.

    thank you v.much in advance

    Unsuitable or offensive? Report this comment

  • Hold on sec.... so a Liverpool based Claimant Personal Injury Firm has a higher PEP that the magic circle giants... ouch.... that has to hurt...

    Unsuitable or offensive? Report this comment

  • Well Ayaz Ib: my first thought was, you should look it up for yourself as research skills are key to your future career and frankly you won't get far in life relying on other people to do the work for you.

    Nevertheless, as I'm feeling charitable here's a very broadbrush noddy guide - there's a couple of elements which come together to enables firms to work out the PEP:

    1. Equity partners share the spare cash left over at the end of the financial year after everything else has been paid for ( ie profits) amongst themselves.

    2. So with partnerships having the nature akin to a 'sack of cats' when it comes to agreeing what proportion of the profits each partner takes on an annual basis (and there can be revisions for several years afterwards in the large firms with lots of partner movement), there has to be an agreement to work out who gets what, so there has to be a basic 'unit' for the system to work. And because partnerships can divide the profits however they want amongst the partnership (according to the Partnership Agreement) you need a common benchmark for comparison purposes year on year and against one's competitors of a similar size/ client base etc.

    3. Broadly speaking, there's the 'eat what you kill' system (where the higher the fees you bring in and the more cost effective you are ie actual profits being fees less costs - the more 'units' you fight for in the annual bunfight for units) and there's the 'ladder' system (where there's a fixed number of units allocated to you depending on how many years you've been an equity partner, adjusted for performance/ absence/ other duties etc).

    4. Then there's the 'special deals' where certain partners get fewer or more units depending on all sorts of criteria, but usually performance/ other duties/ difficult markets etc.

    5. So the firm adds up all the units they've allocated across their equity partners for the financial year to come up with a total number of units for that year.

    6. Then they take the net profits figure in point (1) and divide it by the total number of units in point (5) - which gives a benchmark for how well they are doing (or not) on a per unit basis as this is a much more useful financial marker for comparative purposes. Then they publish it because their clients publish their figures and anyway they want to know how they're doing in comparison to the other firms.

    7. PEP can be useful but isn't the whole story as for example a Liverpool based Claimant PI firm having a higher PEP than magic circle giants as Anon commented on 27 Aug is an apparently anomolous result that's quite painful.

    However (without knowing anything about the firms in question) one could speculate that this could be a result of factors such as tight budgetary control, buoyant client base, high profit to cost ratio and/or (which is probably key), fewer partners to share the profits. eg if you have £50m net profits and 10 partners each with 100 points you will have PEP of £50K, however if you have £50m net profits and 40 partners with say 2,500 points in total you get a PEP of £20K.

    Which is why there's also league tables of turnover/ revenues (turnover being the gross fees earned in the year. Costs are netted off to give net profits, which are then divided by the total no. of units to reach PEP as explained above). It is entirely possible that a firm with quite a low turnover ends up with high PEP because, for example, their business model only needs low level (cheaper) staff or operates in an area where the fees are fixed or always paid etc or might not need to invest heavily in intellectual or physical capital, whereas a firm with quite a high turnover ends up with a low PEP because they operate in a more expensive area and staff and buildings etc cost more, or they're more established and have international offices which aren't performing as hoped - all sorts of different reasons.

    Hence Freshfields with a PEP of £1,443 has turnover of £1,287,000,000 whereas Silverbeck with a PEP of £1,680 has turnover of £19,100,000 only. Whilst it's interesting to see the gap between the two, the business models are likely to be so different you're comparing apples & bananas (although low costs and high profits are something of a holy grail and I bet there's a bit of interest as to how Silverback have managed it) in same way that comparing British Airways as it used to operate and RyanAir profits isn't necessarily helpful as they were (initially) operating in very different markets for people with different wants & needs (or Harrods & Lidl to take a different extreme example).

    Go and have a look at the Profiles for both firms on this site & play around with the numbers to work out how the relative sizes of the firms in terms of fee income & PEP & staffing numbers affect the results (and their placing in the tables) and you'll begin to see why Revenue & PEP is an important tool but not one to be used in isolation.

    Unsuitable or offensive? Report this comment

Have your say

Mandatory Required Fields

Mandatory

Comments that are in breach or potential breach of our terms and conditions in particular clause 8, may not be published or, if published, may subsequently be taken down. In addition we may remove any comment where a complaint is made in respect of it. These actions are at our sole discretion.

  • Print
  • Comments (6)