It is a well-established point in the legal industry that while much attention is paid to profits per equity partner (PEP), that metric is often substantially different to what most partners are paid.
Among the wealth of stats from our LB100 report this year, we break down in considerably more details the range of earnings at major firms, alongside the broader measure of PEP.
Across the 50 highest-grossing UK law firms in our table, no less than 22 have some partners earning more than £1m a year, with Slaughter and May and, less predictably, Hogan Lovells topping the table with top-of-equity earnings respectively of around £3m and £2.5m. Two others firms – DLA Piper and Freshfields Bruckhaus Deringer – have plateau earnings of over £2m. (US-influenced remuneration models at DLA Piper and Hogan Lovells in part explain their wide range in partner pay).
While the entire Magic Circle obviously makes the £1m earnings club, there is a wide group of other firms with equity ladders breaking into seven figures. Of the UK top 50, firms in this club include Herbert Smith Freehills, Simmons & Simmons, Macfarlanes, Berwin Leighton Paisner, Mishcon de Reya, Eversheds and Stephenson Harwood. Others to narrowly push earnings to such heights include Addleshaw Goddard, Watson Farley & Williams, Clyde & Co, Fieldfisher, Travers Smith, CMS Cameron McKenna, Taylor Wessing and RPC.
Of the major City firms that might be expected to scale such heights, Ashurst is the glaring exception. The City firm endured a turbulent financial year with a 10% drop in revenue to £505m coupled with a 19% fall in PEP that saw its plateau earnings fall from over £1m to £820,000.
Freshfields’ top-of-equity of £2.093m leads the City’s four international Magic Circle firms, followed by Allen & Overy on £1.862m while top earners at Linklaters and Clifford Chance took home £1.86m and £1.6m respectively. Constituting one of this year’s strongest performers across the top 100 is Mishcon, which saw its top-of-equity grow from £1.35m to £1.5m.
Such figures are, obviously, heavily dependent on partnership models, equity spreads and partner/fee earner leverage and prove a very rough guide to underlying profitability.
Judging the LB100 on partner profits, on average across the group PEP was up 5% to £699,000. There are 11 firms in the LB100 with PEP of £1m-plus, with Sacker & Partners and Stewarts Law being notable smaller outfits in the seven-figure club. These figures indicate that over 1,000 partners in the LB100 are earning upwards of £1m a year, with more than half that contingent working in the Square Mile. Those profits were reaped from a £20.19bn income across the group, including £11.39bn generated by the top 10 largest law firms.
But as substantial as those profits are, it still remains slightly off the all-time high for LB100 PEP of £703,000 set back in 2008. These figures are also, of course, being considerably outpaced by leading US law firms still investing heavily in the City. It seems that City firms are increasingly reshaping pay models to push plateau earnings as high as possible to stop top-performers moving to US rivals.
And with organic growth outside the stronger mid-tier and niche players still subdued, LB100 firms are having to work harder to achieve those headline-grabbing profits. Nevertheless, for the select group of partners in top firms, there’s never been a more lucrative time to be a lawyer in the City.
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