The Allen & Overy partnership has voted through reforms at its lockstep to increase rewards for star performers as market pressures from US competitors continue to weigh on the four major international corporations in London.
The partners voted on the changes last week after the proposal was presented to them earlier this month. It comes at a time when the double market pressures of the coronavirus pandemic and competition from US rivals for compensation are showing no sign of easing. A&O declined to comment on the reform, but sources within the company describe the key changes as the ability to stretch the top of the lockstep and accelerate top performers at the bottom of the ladder.
One partner told Legal Business, “It’s essentially a proper scoring where people get a profit share upfront. So if you are a superstar, you know you will get more points as the year progresses. They know how much you’re getting, rather than following the whim of a compensation committee.
“There aren’t many places left that can claim to be pure lockstep, and what we already have isn’t really lockstep. However, when you tell the partners of a Magic Circle company that you are taking Lockstep away, they are in your arms. This is just another iteration of Lockstep. ‘
The management of A&O is not afraid of a possible revision of the compensation structure. Lengthy and ultimately broken merger talks with the West Coast firm O’Melveny & Myers led to inevitable questions about how the delicate problem of aligning compensation with a US company could be tackled. The company has at least worked out many details of what major reform would look like during the O’Melveny Process, including a model that a select few stars could have paid for $ 8 million a year with the understanding that the model Could deliver USD 6 million deals for a larger pool of top performers.
And it’s true that A&O has gone further than Magic Circle colleagues in the war for talent in the past. It has the ability to pay top performers above its core lockstep, with deals above the plateau and bonuses for “eagle points”. Rumor has it that partners in London average 20 to 50 points, with each point being worth around £ 45,000 before eagle points are taken into account. A & O’s top earners can take home $ 3.5 million to $ 4 million.
While it’s more flexible than colleagues, it hasn’t stopped partners from looking for more lucrative offers. The collapse of the O’Melveny deal was not without collateral damage. Alan Rockwell and Michael Chernick left A & O’s New York office for Shearman & Sterling just a month after A&O lost esteemed London corporate partners Simon Toms and George Knighton to Skadden, Arps, Slate, Meagher & Flom. That blow came just 10 days after the merger talks collapsed.
More recently, New York banking heavyweight Cahill Gordon & Reindel hired Jonathan Brownson, head of Allen & Overy’s acclaimed leveraged finance practice, and high yield specialist and partner Jake Keaveny, in July.
Projects and energy boss Gareth Price could hardly have taken Andrew Ballheimer at the helm of managing partner in a more difficult time after he was elected in February just before the London lockdown began in March. Still, he and his senior partner Wim Dejonghe clearly did not allow this upheaval to hinder the implementation of their strategy. For many in the urban elite, reform is seen as the only logical solution to a problem.
“You have to accept that US firms have more buying power when it comes to bare money. If you think you are going to lose a significant number of partners to money, then you have to figure out how to bridge the gap.” ‘concluded the A&O partner.