Mishcon de Reya isn’t a firm that shies away from the headlines.
Its famously outspoken managing partner Kevin Gold routinely makes the headlines for his changes to the firm – such as letting partners take unlimited holidays, taking business advice from the office cleaner or hiring the person who did the Fanta adverts to lead the marketing department.
But one change currently being mooted at the firm could be one of Gold’s boldest moves yet.
Gold revealed to The Lawyer in June he was consulting with partners on plans to remove origination as a factor for measuring how much its lawyers are paid. This would, in theory, flatten the pay hierarchy to take away the focus on originating work.
What is origination?
Origination is the act of a lawyer bringing in work to his or her firm. This could be through having a contact or friend in the client’s business or due to a track record of the lawyer working on similar cases or deals that meant the client contacted them directly.
The amount of work a lawyer brings in is tracked in a financial year, even if the law firm they work for doesn’t pay its lawyers based on merit (see: lockstep, below).
Originating work has long been the central basis on which solicitors climb up the ladder from associate to partnership and it’s an easy indicator for management of how well a lawyer is performing and how much money they have earned for the firm.
In the case of a firm that does pay its lawyers based on how much work they have done and the quality of that work (such as Mishcon), origination has traditionally been the main factor in deciding how that lawyer is compensated and how much they get when it comes to bonus season.
Who would be affected by removing origination from pay?
Such a move could be good news for junior partners who typically haven’t yet amassed the contacts needed to bring in big instructions. Gold says the change would “stop the overemphasis on originations that leads to a silo mentality” – i.e. stop partners keeping their contact book close to their chest and refusing to share knowledge or clients with their colleagues.
From a business perspective this makes a lot of sense. A lot has been written on how a “silo mentality” can decrease efficiency in an organisation by fostering individualism instead of teamwork. Gold also says the firm’s clients will likely be much happier to be able to call on three or four partners at the firm should one be unreachable, instead of just having one point of contact.
But it’s a tricky system. Lawyers who are rainmakers (bring in lots of work) want to be rewarded for it, but lawyers who do exceptionally good work and bill the most hours on a project – even though they didn’t bring the client in originally – need to be compensated fairly too.
Indeed, Gold is yet to confirm how exactly its remuneration structure would work if origination was taken off the board, and said it’s still important that the firm “rewards rainmakers”.
So what’s ’lockstep’?
UK law firm pay structures have traditionally rewarded seniority much more than merit, particularly in the top 10 firms. A big complaint of young, talented partners at leading firms in recent years is about older partners who reach a “plateau” around 15 or 20 years after being made partner.
They reach the top of equity (and are making the most money they could earn at the firm) so are not motivated to go out and find work or do the 18-hour days plaguing the lives of their juniors.
Many firms over the last year have started to flex the traditional lockstep structure to reward talented “star partners” in a bid to stop them leaving for US firms like Kirkland & Ellis or Davis Polk & Wardwell, where pay can typically be around a third higher than in UK firms at all levels of practice.
[You can compare how much US and UK firms in London pay with The Lawyer’s Salary Survey]
The lockstep model is designed to increase a lawyer’s salary directly in line with the number of years’ experience they have accumulated since qualification. It doesn’t take into account individual performance or number of cases worked on and is generally quite liked – it means you know exactly how much you’ll take home each year and what your colleagues are making.
So on the surface, whether you originate work or not doesn’t affect your pay at a lockstep firm. However, the ambitious associates that network while on secondment and use contacts made at university and socially to befriend in-house lawyers are typically the ones first in line when partner promotions season rolls around.
With the big influx of high-paying US firms to London over the last decade, it’s the lawyers with strong client bonds and a bulging contact book that get poached for the best jobs.
What does this mean for the future?
Leading UK firms like Freshfields Bruckhaus Deringer, Linklaters and Clifford Chance are unlikely to abandon their traditional lockstep structure any time soon, despite the recent adaptations. But more and more top 100 firms are implementing the merit-based pay structure, which enables firms to approach pay in a much more flexible manner – reducing costs by paying under-performing associates less without making redundancies, for example. It also means that lawyers far outperforming their peers will likely see their pay increase.
Of course, the extent to which merit is rewarded or the structure implemented is not universal across all firms that use such a system. The state of the economy is also a big factor in the importance of origination, whether you work at a lockstep or merit-based firm. In a tough economy people are much more possessive about the clients they bring in, but when the financial markets are booming it’s unlikely lawyers will have spats over who deserves the origination credit on a piece of work.
Ashurst, Addleshaw Goddard and Pinsent Masons were relatively early pioneers of the merit system. Other firms with some semblance of merit-based pay include: CMS Cameron McKenna, Squire Patton Boggs, Fieldfisher, Olswang, Simmons & Simmons, Mishcon de Reya and Stephenson Harwood.
Mishcon might be the first merit-based firm to separate out the issue of origination from what lawyers should be paid but, with a greater propensity for merit in the UK legal market, change across all firms – including leading lockep firms – in the way pay is calculated is inevitable.
As a general rule, aspiring partners should see making friends and building contacts in the financial, retail, regulatory and business space as of equally importance to poring over case history. Befriending a partner at your firm widely regarded as a “rainmaker” means a useful mentor in the future. As for Mishcon, origination may not be as important as it once was there, but you can bet its lawyers won’t be easing up on the networking.