City giant’s remuneration review comes after recent key departures
In a move considered overdue by some, Clifford Chance (CC) voted through proposed changes to its remuneration system in late April, creating a more flexible lockstep by stretching the top of the ladder in a bid to retain star partners.
The firm traditionally operated a lockstep system with a single profit pool, where partners spent three years as juniors before progressing on to the equity ladder, which ranges between 40 and 100 points. Under the changes voted through, leading partners can be moved from 100 points up to either 115 or 130, while others may be brought down from the 100-point plateau to 70 points. While billed by management as a fairly comprehensive review intended to look at performance across all geographies, it remains unclear which criteria will be used to determine how partners will move up or down the ladder.
CC had been mulling changes to its remuneration for some time and in January kicked off a review of the system – a move taken as part of managing partner Matthew Layton’s election manifesto in 2013 – at management level. The proposals finally went to a partnership vote and received approval in late April.
One CC partner comments: ‘The remuneration system is fundamentally sound. But the two issues that need to be considered are: is it a fair system for all the partners with their level of experience, from junior to those on the plateau? And how do we address the situation in markets where there’s a business need to bring people in? Those are two issues people have to grapple with.’
The change follows the departure of multiple heavyweight partners in recent years, in particular from its once-renowned private equity practice, including recently global private equity co-head Oliver Felsenstein.
However, as one partner comments: ‘Fundamentally, CC has to be confident it has good people. If we’re going to do something radical, now is the time to do it.’
Despite the changes, the firm still faces challenges in retaining key talent. As a former partner says: ‘Its sheer levels of profitability made it vulnerable to cherry-picking by other firms. That makes it quite hard to hold on to people.’
According to the 2014 Global 100 figures, CC’s current profit per equity partner (PEP) figure of £1.14m lags behind that of Magic Circle peers Linklaters (£1.34m) and Freshfields Bruckhaus Deringer (£1.48m), and matches that of Allen & Overy, while US rivals such as Latham & Watkins and Simpson Thacher & Bartlett are well ahead, with PEP figures of $2.5m and $3.2m respectively.
sarah.downey@legalease.co.uk