Copious has been the coverage around Freshfields’ revised lockstep–for example, The Lawyer’sBe careful what you wish for: First round of Freshfields partners hit by lockstep reform.”  It turns out that no matter how resounding the endorsement of the partners for the plan, now that it’s taking effect oxes are gored.  Reports are that on the order of 60 to 100 partners were asked to “voluntarily” drop themselves down the lockstep, but when not enough took up the invitation (it’s actually not clear that anyone whatsoever did), the firm enforced the recalibration.

What’s going on?  Why would one of the most successful firms in the Anglosphere do this to its partners on such a broad scale?

Actually, the most salient aspect of this story is that it’s not a story about Freshfields; they just had the bad luck to be the first firm doing this that the legal press focused on.  And, worse luck, Freshfields is…Freshfields. If news had broken about Simmons & Simmons doing something similar, no ripples. (Sorry, S&S, but you know what I’m driving at.)

I’ll describe my theory of what’s going on here momentarily, but first, back to the numbers:

  • The earlier lockstep ran from 17.5 to 50 points
  • The new system runs from 12 to 60, with “gates” at 22, 30, and 40.
  • A Freshfields point was worth about £58,000 last fiscal year.
  • The 60–100 partners featured in the story have dropped from 50 on the old system to 30 in the new, which translates to dropping from £2.0M to £1.7M (or US$2.67M to US$2.27M).

As a point of reference, the threshold income in the US for the famous “top 1%” is a household income of $480,000 as of 2017 so even on the reduced point scale Freshfields partners would be comfortably in the 99.X%.

At those levels no one is exactly at risk of losing their home to foreclosure, but that’s not quite a rebuttal to the emotional insult experienced.

Here’s what I think this is about: Once top-tier firms awaken to the reality that we live in an age of Superstars who can command outsized compensation packages–and once firms reconfigure their compensation ladders to accommodate the whopping market rates for top-end individuals–the money has to come from somewhere.

So this is  the first highly visible fissure revealing the implications for the vast majority of us who are not superstars; We may not be worth as much as we thought we were.

Perhaps a visualization would help.  If the classic lockstep system (modified or otherwise) resembles a sort of staircase  ascending and perhaps descending in orderly gradients, the new Super Pointer systems have morphed into something closer to a discontinuous step function.  Most of the smooth old staircase remains–it makes tremendous sense for the bulk of B, B+, and A- players–but grafted onto each end are waterfalls. The waterfall that descends at the right for the B-, C+, and worse players symbolizes an abrupt cascade downward, embodying a stark and unforgiving message.  And the waterfall on the left descending from the aerie of the A+ Super Pointers to connect up with the good old staircase is for the marquee players identifiable by name on the front pages of The New York TImes, The Wall Street Journal, or the Financial TImes,

Freshfields–give them generous credit for this–has migrated to our brave new world of “Talent & Free Agency Win,” as I titled this scenario in Tomorrowland.

Are the B through A- players unhappy, resentful, feeling insulted, or worse?  Three guesses.

Could they en masse make more money somewhere else, or even what they used to make at Freshfields?  This trend, if enduring trend it proves to be, is too young to have generated meaningful data, but the strong and uncontradicted signal I’m getting from conversations and shoe leather research is, not a chance.  (Individual anomalies will always be individual anomalies, but don’t count on one striking you to, uh, cover your mortgage.)

We entered this territory with the legal press giving Freshfields a very hard time for what was, understandably, reported largely as a human interest story.  Count me near the front of the line of sympathizers; macro adjustments in markets never create exclusively winners.

But if my theory about what’s going on here is right–Freshfields has moved into the next phase of the War for Talent, and has given itself the ammunition to fight and win its fair share on that battleground–then they may have been among the first and more conspicuous to do so. If market logic plays itself out the way my intuition sees this headed, they cannot be the last.  The money has to come from somewhere.

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