Eversheds may have retained its place as the UK’s largest
national firm in 2006-07 (its turnover of £356m was a
country mile from nearest rival Pinsent Masons’ revenue of £192.4m), but it is Shoosmiths that boasts by far the highest average revenue per lawyer (RPL).
Although it recorded a comparatively tiny turnover of just £95m, Midlands-based Shoosmiths lays claim to an RPL of £303,000, far clear of Eversheds’ secondplaced position of £263,000.
As rivals will be quick to point out, Shoosmiths’ RPL is distorted by a business model unique to its peer group. Unlike Eversheds, which has a total of 1,356 lawyers,
Shoosmiths has just 314, the fewest of any firm in the group. Instead it relies on a large number of non-lawyer fee-earners, giving the appearance of some massively productive lawyers when the reality is a little closer to the market norm.
Shoosmiths has a total of 342 non-lawyer fee-earners to its 314 lawyers, a ratio of more than one for one. If all these fee-earners were counted as lawyers, RPL would be a distinctly less impressive at £145,000.
Among the firms without Shoosmiths’ RPL head-start, Eversheds (£263,000), Bristolbased Osborne Clarke £257,000), Pinsent Masons (£252,000) and Birmingham-based Wragge & Co (£259,000) form a tight band, with just £19,000 between their top and bottom RPL figures.
The remaining four firms, Beachcroft, Cobbetts, Halliwells and Hammonds also form a tight-knit group, with Halliwells’
£216,000 at the top only £21,000 clear of Cobbetts’ £195,000 at the bottom.
When it comes to average profit per equity partner (PEP), however, Halliwells has more to swagger about. Partners at the firm enjoyed a PEP of £587,000, up by 15.5 per cent on last year’s £508,000, despite an increase in the equity partnership of seven from last year’s 40. PEP growth was coupled with a 37.5 per cent increase in turnover, from £62.7m up to £86.2m, with particular growth in corporate, real estate and disputes.
Halliwells’ PEP was £85,000 clear of the take-home enjoyed by the group’s second highest-paid equity partners, those at Osborne Clarke, where PEP broke the £500,000 barrier for the first time this year to hit £511,000.
Osborne Clarke’s PEP marked a healthy 20 per cent increase on last year’s figure of £425,000 and reflects the firm’s focus on increasing the quality of work and shaking off lower-value, more price-sensitive clients. Turnover rose by a more commonplace 11 percent during the same period, from £74.1m to £82.8m. Unlike at Halliwells, however, where the full-equity group has expanded, Osborne Clarke’s equity partnership was reduced from 54 to 52 members, while the total partnership went in the opposite direction, from 98 to 102 partners.
Also cracking the £500,000 PEP mark this year was Eversheds, with PEP rising by 20 per cent for the second year running to £502,000. This reflects the success of the
firm’s push to increase profitability and is an encouraging milestone for it to pass on the road to its PEP target of £600,000 by 2009.
Eversheds’ focus on increasing revenue from corporate and finance over the past 12 months was a successful one, with the team now usurping real estate as Eversheds’ highest-earning practice group, accounting for 30 per cent of total revenue against real estate’s 24 per cent. Real estate continues to bring in more per partner, however, with the team numbering just 79 partners against the joint corporate and finance group’s 115.
CEO David Gray argues that the figures show the firm’s strategic plan, revealed by The Lawyer (26 March), is succeeding. “Once again profitability has been one of our key targets over the past year, and with PEP breaking the £500,000 barrier we’ve proven our ability to deliver on our promises,” says Gray.
Pinsents failed to repeat last year’s rocket in PEP, when equity partners’ take-home pay leapt by 70 per cent to £400,000 from the previous year’s £234,000, but 2006-07
nevertheless saw a steady climb in both turnover and profitability.
Turnover grew by 12 per cent from last year’s £172m to hit £192m, a boost of almost a quarter on the combined revenues of Pinsents and Masons in 2004-05, when the two firms merged. Managing partner David Ryan says: “This is good progress – we’re well ahead of budget. We originally budgeted for a £185m [turnover] this year.” However, profit has improved more dramatically in the same three-year period, with PEP soaring by 101 per cent, from £234,000 in 2004-05 to £471,000 in 2006-07 (an increase of 18 per cent on last year’s £400,000). The surge in PEP results from Pinsents’ management getting to grips with its sprawling cost base,as well as the firm having kept a very tight grip on the equity. Over three years the number of equity partners has dropped by 16 to 105.
All of these numbers must seem a world away for the equity partners at Cobbetts. The PEP of £240,000 was less than half of Halliwells’, despite an impressive growth of 31.6 per cent from last year’s static £190,000 and Cobbetts’ status as the most leveraged in the group, with an equity partner to qualified lawyer ratio of 1:8.1.
The improvement in PEP at Cobbetts was partly the result of a restructuring in which 30 equity partners were culled. The firm launched a consultation on the topic in June last year to address what was then a third year of flagging PEP. It also looked to address the internal perception that a restructure was essential in order to eliminate some unnecessary overlapping of capabilities across the firm’s three North of England offices.
A year on and the number of equity partners at Cobbetts has decreased by a remarkable 60 per cent since 2004-05, from 83 down to 33 for the 2006-07 financial year. The number of equity partners decreased by 15 in the 2006-07 financial year alone, from 48 to 33. In the same period, turnover increased by 9 per cent, from £53.8m to £58.6m.
“The figures demonstrate that we’re well on the way to delivering our long-term strategy, which has seen us make investments in people and infrastructure in core growth
areas,” says managing partner Michael Shaw.
However, the firm will have to keep a tight rein on costs if the boost in profitability is to be sustained. Its average cost per lawyer (CPL) of £169,000 is below the peer group average of £176,000, although not significantly, and as well as moving to new premises in Manchester the firm is shortly to shoulder a second major expense in the form of a launch in the capital this year.
Property was Cobbetts’ best-performing practice group last year, generating just less than a third of total turnover. The corporate team’s turnover dipped by 9 per cent, however, accounting for 15 per cent of total turnover compared with 24 per cent previously in 2005-06.
Halliwells might top the table when it comes to PEP, but when it comes to average earnings per partner (EPP), the alternative guide to remuneration, Wragges is the peer group’s clear front-runner.
Partners at the all-equity Birminghambased firm, earned an average of £414,000 in 2006-07, a chasm of almost £100,000
ahead of the EPP at second-placed firm Osborne Clarke, which recorded £350,000. And even Osborne Clarke’s EPP is itself far clear of third-placed Pinsents, which recorded an EPP of £293,000. Bottom of the EPP table is Hammonds, where partners recorded an average of just £204,000.
The financial year was an encouraging one for Hammonds’ equity partners, however, who saw PEP rise by 23 per cent, from £328,000 to £404,000, in 2006-07, a sign of recovery at what 12 months ago was by far the group’s most obviously troubled firm.
“We’ve exceeded all of the targets and benchmarks we’ve set this year and in all material measures we’ve exceeded our budget,” claims managing partner Peter Crossley.
The increased profit reflects the success of the new remuneration structure, which is being phased in over three years and which balances the firm’s traditional managed lockstep with performance-based remuneration that factors both partners’ individual performances and those of their practice groups’.
But let us not forget the costs. Shoosmiths’ hidden non-lawyer fee-earners, which are a blessing for the firm when it comes to recording an RPL figure, are its curse when it comes to recording one for CPL, helping to push the average up to far and away the group’s highest, on £251,000. This is well clear of the firm in second place, Eversheds, where the CPL of £207,000 was itself well clear of that of the third most costly lawyers, those at Pinsents, where the CPL figure is £180,000 a year on average.
The high-PEP Halliwells and best placed EPP firm Wragges can both in large part attribute their profitability down to their vice-like grips on costs, coming eighth and seventh lowest in the nine-firm peer group, with CPLs of £147,000 and £155,000 respectively. The least costly lawyers in the group, however, were those at Beachcroft, who cost just £144,000 on average.
Beachcroft’s low costs helped explain the firm’s 18 per cent increase in PEP, which hit £320,000 from a starting point of £270,000 a year ago.
Managing partner Paul Murray attributes this growth, a significant surplus on the firm’s target PEP of £300,000, to “prudent management of expenditure and concentration on improving revenue per lawyer”. Yet while the firm’s average CPL of £176,000 was indeed well below its national rivals’, lawyers will need to work harder if the latter is ever to come true.
The firm’s average RPL last year languished at just £196,000, less than the average RPL at any other firm in the peer group except Cobbetts, and far short of the national peer group’s average RPL of £238,000.
Beachcroft did, however, break the £100m turnover barrier for the first time this year after narrowly missing it 12 months ago, recording a 14 per cent increase on last year’s
£98m to hit £112m.