The world’s largest law firm, Baker & McKenzie, is set to overhaul its longstanding remuneration system in Europe and Asia, with a large percentage of pay set to be decided by the success of each region.
Currently, around 60% of partner pay comes from the firm’s global profit pool, with the remaining 40% handed out from profits generated nationally. Before the end of this year, the firm will begin phasing out the local profit pools, with profits being reallocated regionally into two pots, with one for Baker & McKenzie’s 17 Asia-Pacific offices and another for its 33 offices in Europe, the Middle East and Africa.
Baker & McKenzie has operated as a Swiss Verein since 2004, a decision management says was designed to add a layer of legal protection rather than separate partners and their pay by jurisdiction. Christine Lagarde, now head of the International Monetary Fund, kickstarted the firm’s push to greater integrate partner pay during her time as chair in the early 2000s to reduce the disparity between locations.
Now, the firm will scrap local profit pools and remuneration in Asia and EMEA in a bid to push the number of referrals around the firm’s 77 offices. Last year, 55% of the firm’s $2.54bn revenue came from clients using five or more offices and management believes this can be increased following a raft of new office openings. The change was ratified at the firm’s annual partners meeting in London last month after the partnership voted in favour of the shake-up earlier this year.
Baker & McKenzie in 2005 established a regional profit pool and remuneration system for its nine offices in North America. This latest overhaul is the most radical change to its pay structure since then and means that the majority of the firm will be paid on a global and regional basis. The firm’s fastest growing region last year, 15-office strong Latin America, is the last remaining region with the traditional mix of payment based on the profits generated by a partner’s own office and global pool.
However, a senior partner at the firm concedes that the varying profitability of offices across the network means partners in London, which will be in the same regional pool as offices in Kiev, Warsaw, Almaty and Baku, are likely to be worse off as a result. They said: ‘It will be a staggered process as there will be three components to begin with: global, regional and local. The plan is that, in the long run, profits will rise on the back of greater motivation and accountability for sharing work across offices as pay will be centralised.’
Increasingly, remuneration at Baker & McKenzie is centred on how much work is brought in that can be shared around the network, with changes made in 2011 to reward partners who focus on major international clients, while it has also introduced more credit for partners who perform well on client management, one of the global firm’s core areas of focus.
The shifting pay structure comes while the 4,000-lawyer firm also reallocates power from heads of offices to global practice heads as it looks to push clients towards its other offices, with the budget for heads of practices, who are increasingly in charge of lateral recruitment, rising by 10% for this financial year.
A spokesperson for the firm said: ‘Partners in Baker & McKenzie are remunerated according to a range of factors and criteria designed to encourage behaviour aligned with our global strategic priorities. The system has been refined over the years and will continue to be refined as the needs of our business and our clients develop. We will continue to review and innovate in this area.’