Can a UK firm crack the New York market without bending its lockstep
partner compensation model?
No, at
least not if you’re Clifford Chance. CC has a global lockstep for its
equity partners except some "super-pointers" in New York. This
anomaly dates to the late ’90’s merger with Rogers and Wells and represented
an expedient, if unstable, response to the high profitability (and high
pay) of the New York office. But when the "New York exception"
came up for review by the global partnership recently, New York partners being in the numerical minority, its continuation was rejected. What to do? Hem
and haw and try to change the subject, essentially. No, forgive me; the actual plan is to "secure a dramatic increase in profitability this year." Gosh! Why didn’t I think of that?
Since part of the technique of achieving this "dramatic increase" involves knee-capping the incentives for the New York office, which should be the firm’s first or second most profitable world-wide, I predict we have not seen the end of this exercise in fleeing the inevitable.
As a certain
Presidential candidate has suddenly become fond of saying, this is a
problem from which "you can run, but you cannot hide."
I believe the choice is increasingly stark: Hew to your lockstep
tradition and abandon any serious hopes of cracking the New York market,
or—vice versa.
Bruce,
It might be helpful to explain the extent to which a firm can depart from lockstep and still be a single-tier partnership.
As you have (correctly) noted in the past, two-tier (equity and non-equity) partnerships are not, as a general matter, as profitable as single tier firms, particularly in NYC. This could be due to (a) historical factors related to firm prestige and client base, (b) potentially deleterious incentives within two-tier firms, or (c) some combination of pedigree and microeconomics.
It seems to me that competing in the top echelon of the NYC market requires an extremely difficult tight wire act. Assuming a firm takes your advice and accepts the necessity of a modified lockstep in order to keep its powerful NYC partners happy, isn’t it running the risk of becoming a two-tier firm?