Freshfields Bruckhaus Deringer faces internal tension after reducing the profit share for more than 60 partners as part of a new lockstep system implemented this month. Many affected partners were previously at the top of the firm's pay scale and were asked to "voluntarily reposition" themselves, effectively cutting their earnings. For instance, some partners whose profit share was around £2 million (approximately $2.56 million USD) have seen it drop to about £1.7 million (approximately $2.18 million USD), even with an increase in the value per point to about £58,000 (approximately $74,240 USD).
The new lockstep system, which operates from 12 to 60 points with clear gates at 22, 30, and 40 points, is a significant shift from the previous ladder that ranged from 17.5 to 50 points. This overhaul, agreed upon in November of the previous year, led to all approximately 400 partners having their positions reassessed before the system took effect on May 1st. While the official reason for the changes is to retain star performers and fuel the firm's aggressive expansion in the U.S., former partners suggest that few partners are now above the 30-point gate, indicating that 30 points is becoming the new standard for achieving greater profitability.
The firm's move comes amidst a broader trend among major law firms to adjust compensation models to enhance profit per equity partner and compete for top talent, particularly in the U.S. Freshfields previously modified its lockstep in 2017 to move away from a pure lockstep system. The firm has also introduced a nonequity partner tier and stretched its lockstep to provide higher rewards for top earners. The changes reflect Freshfields' ambition to increase its U.S. presence, where its revenue growth has outpaced other regions, rising 22.7% from £391.1 million to £473.3 million in the last fiscal year. However, the re-evaluation of partner compensation has created an atmosphere of unease, with one ex-partner noting, "The atmosphere in the firm is not brilliant right now. The cuts affect people everywhere and they are not based in one region or specific to a practice area."
In related developments, Freshfields has also started implementing a contractual six-month notice period for non-U.S. partners looking to depart, a departure from its previous practice of accepting a three-month notice. This move comes as the firm faces a growing number of senior partner exits across Europe, including a four-partner German team that moved to Latham & Watkins and other partners joining firms like Skadden, Arps, Slate, Meagher & Flom, White & Case, and Gibson Dunn & Crutcher. Concurrently, Freshfields reported revenues of £2.25 billion (approximately $3 billion USD) in its last fiscal year, an increase of 6% year-over-year, with U.S. revenue accounting for about one-fifth of the total.
