Law: Calculating a profitable arrangement: Sharon Wallach reports on a scheme to benefit employees and also the employer

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The Independent Online
FRESHFIELDS is one of the latest of the major City firms to introduce profit-related pay (PRP) schemes for its employees. The schemes, which allow tax relief to be claimed on up to 20 per cent or pounds 4,000 of salaries (whichever is the lower), have become increasingly popular since 1991, when the Government made changes to the rules, doubling the amount of allowable tax relief.

To introduce a PRP scheme, a firm must first ballot all its eligible employees, and gain the agreement of at least 80 per cent. Even then, the scheme remains a voluntary one.

Penny Targett, of Freshfields' personnel and finance department, says that the idea behind introducing PRP was to ensure that everyone in the firm benefited equally. 'It is an opportunity to underpin in people's minds the idea that they are part of a team,' she says. 'Everyone does have a role to play.'

A senior partner in another firm running a PRP scheme disagrees, however. 'The staff don't know - or need to know - what the firm's profits are,' he says, although he acknowledges that they can be worked out. His firm introduced PRP because it is a 'frightfully important management tool'. In addition, he adds: 'It was something for nothing - an opportunity to give the staff another benefit at no cost to the firm.'

On second thoughts, he says that there was additional cost to the firm in the sense of complying with Inland Revenue regulations. These require that the firm annually undergoes a full statutory audit. 'So we are involved in more work and a lot more expense, but that said, it is a price worth paying,' he says. 'A statutory audit is a good financial discipline for a business our size.'

Among the other firms introducing PRP schemes next month are Lovell White Durrant and Dibb Lupton Broomhead. Simmons & Simmons and Denton Hall have had schemes in place since 1992.