Law: Firms pay price for performance: Profit-related salaries are a growing trend, says Neasa MacErlean

NOTHING embarrasses the British quite as much as the question of money. But now that there is less of it about, law firms are taking a much closer look at their finances.

Profit-related pay (PRP) is currently one of the most frequently debated subjects in the bars around Chancery Lane and the City where the largest firms have their offices. At least one-third of the top 20 firms are either introducing PRP or are seriously considering it. The smaller firms and the regional firms are also going in the same direction.

This month alone Linklaters & Paines is introducing a PRP scheme for its 1,500 professional and support staff and D J Freeman is bringing in a system of profit centre accounting to provide more information about departmental costs.

Two top ten firms, Simmons & Simmons and Denton Hall Burgin & Warrens, are among those who have already introduced PRP. For both, the tax advantages were at least as important as the issue of staff motivation. The Inland Revenue allows employers to pay up to pounds 4,000 tax-free to each employee under a PRP scheme. For a higher-rate taxpayer this means a tax saving of pounds 1,600. By introducing PRP last year - at a time when salary levels were decreasing by more than 5 per cent across the profession - the firms found a way of helping their staff in the depth of the recession, by giving them more take-home pay from the same earning.

The accountancy firm Arthur Andersen has done the most to promote PRP schemes in law firms since it introduced its own in 1991. David Marks, a tax partner, has advised Denton Hall and others. 'There's a great deal of interest because it enables employees to have a reasonable pay increase when law firms are having trouble with their profitability,' he says.

Many others around the country are likely to follow suit. The firm Halliwell Landau in Manchester, Bristol-based Osborne Clarke and the City firm, Sinclair Roche & Temperley, are all mulling it over. Furthest down the road is Halliwell Landau, which hopes to have a scheme in place within the next few months. Like other PRP schemes, it requires 80 per cent of employees to vote in its favour.

Mark Billings, the partnership secretary at Halliwell Landau, says the discussions have lasted longer than the firm originally expected. 'We have experienced some resistance,' he says. 'Some people are not very happy with it. They are concerned about what would happen if there is a legislative change and PRP is scrapped. They would have agreed to a lower base salary and they would be out of pocket.'

The firm is expected to promise employees that their salaries will be increased for the PRP element if PRP is ever abolished. Employers are not allowed to promise their staff the PRP element of their pay if the predicted profits are not made, but most law firms are trying to set profit target levels for the PRP schemes that are readily achievable.

For Halliwell Landau the tax saving is the main reason for introducing PRP. Sinclair Roche and Osborne Clarke, however, are more interested in the management and motivational issues behind performance-related remuneration. (Performance-related remuneration can be very different to PRP: as its name suggests, it measures overall performance rather than profit, and can be used to differentiate between departments and individual personnel. The PRP schemes treat all employees the same, giving them equal shares of the firm's overall profits.)

The managing partner of Sinclair Roche, Ben Leach, says: 'Most people think PRP would result in a better esprit de corps. It would make staff more motivated, more willing to stay on for the extra ten minutes after work.' Osborne Clarke introduced performance targets for its equity and salaried partners five years ago. Only 60 per cent of a salaried partner's earnings is now fixed. The rest is related to his or her performance in the firm, and that element is set to rise.

'There's an increasing feeling that the employees should also have some risks and some benefits,' says the managing partner, Chris Curling. The firm hopes to introduce some form of profit or performance-related pay by the end of the year.

Law firms have come out of the recession very different animals to the complacent creatures of the late 1980s. Many of the changes are reflected in remuneration issues.

Assistant solicitors are deeply frustrated by the current restrictions that many firms have imposed on partnership promotions. Sally Marsden, a former chair of the Trainee Solicitors Group, suggests that performance- related pay could be used as an alternative way of rewarding them. 'I believe that is a way for firms to retain assistants,' she says. 'There are quite a few disgruntled assistants around.'

Garfield Robbins, recruitment consultants, say that many law firms have, in the past two years, introduced performance-related pay for newly recruited salaried partners. Typically, the new partner would get pounds 70,000 in basic salary plus up to pounds 15,000 depending on performance. According to Gavin Crocker, a consultant: 'Firms now feel that the risks should be shared between the prospective partner and the firm.'

D J Freeman is another practice seriously considering PRP. Its new system of profit centre accounting enables it to analyse in detail the performance of different departments. But Jonathan Lewis, the managing partner, says the system will be used for management purposes only, and not to decide pay levels. 'If we were to relate it to pay it would be divisive,' he says. 'We've built a lot of safeguards in to stop it. In a law firm all the areas of practice are cyclical.'

PRP and performance-related pay have overtaken the quality standard BS 5750 and the debate over corporate management structures as the current issues of the day in running law firms. But Alan Hodgart, a management consultant with Hodgart Temporal, believes that concern over remuneration often masks a deeper worry. He says: 'When I hear firms talking about profit-related pay, I usually find they are not doing enough in the professional area to motivate people.'

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Experienced Bookkeeper - German Speaking - Part Time

£23000 - £25000 per annum: Recruitment Genius: This firm of accountants based ...

Recruitment Genius: Operations Manager

£30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

Ashdown Group: Field Service Engineer

£30000 - £32000 per annum + car allowance and on call: Ashdown Group: A succes...

Recruitment Genius: Sales & Marketing Co-Ordinator

£15000 - £17000 per annum: Recruitment Genius: Well established small company ...

Day In a Page

Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk
Nepal earthquake: One man's desperate escape from Everest base camp after the disaster

Escape from Everest base camp

Nick Talbot was sitting in his tent when the tsunami of snow and rock hit. He was lucky to live, unlike his climbing partner just feet away...
Adopting high fibre diet could dramatically cut risk of bowel cancer, says study

What happened when 20 Americans swapped diets with 20 Africans?

Innovative study in the US produces remarkable results
Blake Lively and 'The Age of Adaline': Gossip Girl comes
of age

Gossip girl comes of age

Blake Lively is best known for playing an affluent teenager. Her role as a woman who is trapped forever at 29 is a greater challenge
Goat cuisine: Kid meat is coming to Ocado

Goat cuisine

It's loved by chefs, ethical, low in fat and delicious. So, will kid meat give lamb a run for its money?
14 best coat hooks

Hang on: 14 best coat hooks

Set the tone for the rest of your house with a stylish and functional coat rack in the hallway
Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?