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Freshfields to deploy second-tier lockstep for more partners as profit drive continues

As Freshfields Bruckhaus Deringer continues its profitability drive, almost a quarter of the global partnership is expected to be on the firm’s second-tier lockstep as early as 2020.

When the firm introduced the second-tier lockstep around three years ago, less than 10% of the then 400-strong partnership was on the separate track. However, from 2020, the proportion of the partnership on the second lockstep is expected to be a quarter.

Around 100 of the firm’s 425 current partners will be placed on the second-tier ladder, which runs from ten to 30 points alongside the traditional 17.5-50-point ladder. Partners can be moved down the ladder, with some told if they want to stay at the Magic Circle firm they will have to accept the new position, while associates could be told they will be capped at 30 points when they are promoted.

Currently, partners in the firm’s German and Japanese offices, and the finance, employment and intellectual property practices are known to be on the second tier.

One former partner told Legal Business: ‘It’s expected that the firm would evolve to a point where it would be roughly 25%. It really wasn’t “we need to have this number” – the firm didn’t start from a number. It was more the thought about which practice, which markets, or both, couldn’t support the rates which justify higher pay to partners.’

Another former Freshfields lawyer, who was asked to go on the second-tier lockstep, added: ‘Why would you go on the second tier when there are plenty of US law firms and even the accountants coming into the market to give you jobs?’

At the time the second-tier lockstep was approved, Freshfields scrapped its non-equity partner roles and transferred them on to the second ladder, affecting around 35 salaried partners. This increase in equity partner numbers drove down the firm’s profit per equity partner for the 2014/15 financial year by 8% to £1.37m. The change came as Legal Business 100 firms reviewed their partnership models following HMRC rule changes for LLPs. The profitability drive was a result of the firm rejecting the idea of introducing three separate profit pools for the UK/Europe, Asia and the US in 2014.

In May, Legal Business revealed Freshfields is also planning to cut its 103-strong German partnership by up to 20 partners by 2020.

Freshfields declined to comment.