Freshfields times it perfectly with pay freeze announcement

Important events ­happen at high noon. If you were working at Freshfields Bruckhaus Deringer last Monday, then at midday you would have received some bad news about your salary.

Freshfields times it perfectly with pay freeze announcementImportant ;events ­happen at high noon. If you were working at Freshfields Bruckhaus Deringer last Monday, then at midday you would have received some bad news about your salary in an email from London managing partner Tim Jones.

A few minutes later you would have been called into a departmental meeting chaired by the partner in charge, confirming that the firm’s pay bands would be frozen from May (see story).

After that, another meeting, this time with individual partner teams, in which ­general concerns would be aired. Then maybe a quick baguette at Paul on Fleet Street.

Freshfields has become the first City operation to reverse its associate salary bands. The firm is using the term ‘pay freeze’, but some lawyers may see it as an effective reduction in pay. The salary paid to newly qualified (NQ) solicitors will drop from £66,000 to £59,000. An associate with two years’ PQE will stay on £73,000 rather than the £86,000 they might be expecting from moving up a band. The pay freeze will take effect in May.

Lawyers qualifying at the magic circle firm this year are cursing their bad luck. After watching a brutal salary and bonus war between City firms from the sidelines of law school a few years ago, they hit the ­profession just as the good times are fading.

Despite this, the partners confirmed that there would still be a bonus pot on offer, with performance-linked payouts decided on a ­discretionary basis with individuals by June.

Say what you like about the decision, but the timing of the announcement was near perfect. Coming just after the launch of unprecedented redundancy programmes at rivals Clifford Chance and Linklaters, Freshfields almost looks like the good guy next to the bad and the ugly.

Most lawyers would ­prefer to be paid the same and keep their jobs rather than take a one in 10 chance of redundancy. Whether the Freshfields management intended it, or whether it was just good luck, is up for debate.

“Probably, to be honest, the partners would never say never, but we’re quite happy not to be in a ­Linklaters New World situation,” says one Freshfields associate. “I think there’s a genuine desire to avoid redundancies. Partners have said that their profits will be taking a hit.”

It is likely that other City firms will follow Freshfields’ lead. White & Case followed suit and has already frozen its lockstep, keeping first and ;second-years ;on £86,000 and £97,000 respectively. Come May there could be a raft of City firms doing the same.

Allen & Overy, Ashurst, Clifford Chance, Herbert Smith, Linklaters and Lovells have all said they are yet to make decisions on salaries. But none ruled it out.
A spokesperson for ­Linklaters says: “We’ll be reviewing salaries and bonuses, as we do annually, in line with the market.”

The market is not good. If Freshfields’ ulterior motive was to reduce its associate headcount organically by letting unhappy associates leave of their own accord, then that ­strategy will ­backfire. Few will take the leap into ­choppy waters.

An associate at the firm says: “People are taking time to think about what they want to do. It’s by no means a recruiting market. People will wait and see as to what happens with the bonus.”

But the real danger for all law firms taking measures to protect profitability in a recession, whether via redundancies or pay freezes, is that an ‘us and them’ ­culture develops between the associates and the ­partners. It could erode firm loyalty and see good people leave, ultimately proving to be a false economy when the firm tries to hire in an upturn.

“The general feeling, as you’d expect, is a bit mixed,” are a Freshfields associate’s comments on the divide between the rich and the slightly less rich. “There’s a bit of a split between the seniors and the juniors. On balance, a few people saw it as a surprise, but accept it if the measure helps to avoid redundancies.

“On a macro level, you can see it makes sense, but obviously on an individual micro level it can be ­different. For a lot of the associates here it’s their first major recession and it takes a bit of adjustment.”

A pay freeze comes with a lot of emotional baggage, but it is ultimately about
the management seeking ­certainty in a new era of unpredictability.

Freshfields will not be able to accurately predict revenue for the next few years. But it can at least turn its biggest variable cost – salaries – into a fixed cost to minimise damage to profitability.

For an opinion on the pay cuts from Freshfields London managing partner Tim Jones, click here.

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