Lockstep on last legs as Lovells switches to merit

Lovells’ decision to alter the remuneration system for its 114 junior partners will not only see its pay system better aligned with merger partner Hogan & Hartson’s, but will also see it join a growing movement away from lockstep and the chargeable hour as a basis for determining non-equity remuneration.

Under the new system non-equity partners at Lovells will see their salaries determined on a case-by-case basis, with a ­performance-based bonus accounting for up to 15 per cent of total income (The Lawyer, 8 March). This is a change from the previous system, whereby non-equity partners ­progressed up a four-year lockstep, with each receiving an additional payment that was ­equivalent to three equity points – £36,798 last year.

Hogan’s remuneration system is known for being meritocratic as well as ­transparent. Both elements of this will transfer into the Hogan Lovells system so that Lovells legacy partners will be able to see where they stand in relation to their colleagues.

Meritocratic systems arguably work best when there are thorough efforts undertaken to ascertain client origination. But Lovells senior partner John Young says partners will be dissuaded from ­holding clients too close to their chest.

“It’s entirely in the interest of the combined firm to encourage partners to share clients as much as possible,” he emphasises. He says “efforts to cross-sell clients” will become an integral part of the appraisal process.

The ­specific criteria of that assessment are yet to be communicated to ­partners, but Young ­confirms that the firm will consider “an entire range of traits and ­contributions that we regard as desirable, including both directly measurable criteria and a range of other ­criteria”. He confirms, for example, that corporate responsibility (CR) is seen as a trait the firm would “like to ­encourage”.

All these elements are consistent with the ­changing City remuneration market. Simmons & ­Simmons ­decided to overhaul its non-equity partner bonus system this year after a reliance on the firm ­hitting budget meant that nobody was paid a bonus in last year’s tough ­environment (The Lawyer, 25 January). Bonuses will continue to be linked to firmwide ­profitability, but partners will be eligible ­provided 50 per cent of ­budgeted ­profitability is reached.

The firm has also simplified the criteria by which it assesses individual performance. Non-equity partners will now be evaluated on the basis of billable hours, managed fees, revenue generation, client development and lock-up management. Areas are weighted accordingly, with revenue generation twice as important as billable hours. There is also potential for contributions to CR to be included.

Like at ­Simmons, ­Addleshaw Goddard’s non-equity partners are already paid on a ­meritocratic basis, but the firm is also considering reforming its bonus system. As with Simmons, ­Addleshaws’ profit trigger was not reached last year and the two-pronged bonus, which rewards both ­individual and firmwide performance, was reduced substantially as a result.

Following the decision to abandon the transfer to an all-equity partnership, plans are now afoot at Addleshaws to align non-equity and ­equity remuneration. Fixed-share partners and directors would be ­awarded points reflective of both individual performance and the ­profitability of the ­business, with each point equal to the value of an ­equity point (TheLawyer.com, 8 February).

However, the changes are not proving popular with everyone. Mark ­Brandon at recruiter First Counsel says that, in the case of Lovells, the fact that some partners will be earning less under the new system could lead to some exits. “Clearly you’re going to have some fallout from people who can’t or don’t want to adapt,” he states.

Young says: “There’ll be some gainers and some ­losers, just as there will be with equity partners. On average partners will carry on taking home the same amount [as under the ­previous system].”
But Brandon thinks a focus on how much ­various firms are paying in bonuses misses a trick and certainly does not feature in recruitment. “I don’t think lawyers are especially incentivised by the attraction of a big bonus,” he says. “They expect they’ll work hard and be duly rewarded.”